171282673 Sample SAP Liquidity Planner

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Cash Accounting and Cash Flow Planning withSAP Liquidity PlannerStephan Kerber, Dirk Warntje

Content

Introduction .............................................. 3Structure of the Book ..................................... 3Acknowledgments .......................................... 4

1 Business Overview .................................. 51.1 The Concept of Cash Accounting .......... 51.2 Tasks of Cash Accounting and

Liquidity Planning ................................. 61.3 Recipients and the Need for

Information .......................................... 71.4 Financial Accounting and

Cash Accounting ................................... 81.5 Differences to Cash Management ......... 91.6 Conclusion ........................................... 11

2 Case Scenario: Implementing CashAccounting and Liquidity Planning .... 132.1 Conclusion ........................................... 15

3 SAP Liquidity Planner: LiquidityAnalysis Using SAP ActualCalculation ................................................. 173.1 Overall Process and System

Integration ............................................ 173.2 Technical Settings in SAP Actual

Calculation ........................................... 173.3 SAP Actual Calculation

(Cash Accounting) ................................ 19Data Model and Master Data ............... 19Functionality—Overview ..................... 21Customizing SAP Actual Calculation ... 21Tools .................................................... 26Tables ................................................... 27

3.4 Cash Accounting Processes ................... 28Information Acquisition fromAssignment Mechanisms ...................... 28Information Acquisition fromBank Statement Information ................ 29Information Acquisition fromFinancial Accounting ............................ 31Manual Assignment and ManualTransfer Posting ................................... 36Analysis Reports ................................... 36

3.5 Conclusion ........................................... 37

4 SAP Liquidity Planner: LiquidityPlanning and ReportingUsing SAP BW/SEM ............................... 394.1 Modeling in SAP BW/SEM .................... 40

SAP Business Content ......................... 40Master Data ......................................... 45Charac teristics ..................................... 53Planning Layout inSAP SEM-BPS/BW-BPS ........................ 54

4.2 The Liquidity Planning Process .............. 634.3 Extracting Actual Data .......................... 644.4 Reporting in SAP BW ............................ 674.5 Conclusion ........................................... 69

5 Liquidity Planning and ReportingWithout SAP BW/SEM .......................... 715.1 Overview .............................................. 715.2 Customizing .......................................... 715.3 Master Data and Actual Data ................ 755.4 Planning ............................................... 765.5 Reporting ............................................. 775.6 Conclusion ........................................... 78



2 © Galileo Press 2006. All rights reserved.

Content

6 Outlook ...................................................... 79

Appendix .................................................... 81

Lee Iacocca and Cash Flow ............................. 81Indirect Cash Flow .......................................... 81Plug-in ........................................................... 81Case Scenario ................................................. 82

Bibliography .............................................. 83

Index ........................................................... 85



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Introduction

This book is about money. Where does money comefrom and where does it go? Because liquidity is one of thecritical success factors for a company, it is integral to run-ning a business. The most important aspects of liquidityare the ability to ensure solvency and generate paymentsurpluses. In this context, companies constantly try to an-alyze and plan their cash ow. Unfortunately, establishedapplications such as Accounting or Cash Managementdon’t provide the necessary information on cash ow re-quired by companies; however, SAP Liquidity Planner af-fords you with the much needed relief in this area, asshown by its rst implementations in both nationally andinternationally operating companies. The complex re-quirements placed on a retrograde liquidity analysis, adecentral planning tool, and an efcient reporting weremet by the use of SAP Liquidity Planner.

SAP Liquidity Planner is a component that consists oftwo applications: Cash Accounting (SAP R/3) and Liquid-ity Planning (prior to Release 3.5, it was part of SAP Stra-tegic Enterprise Management (SAP SEM) , from SAP Busi-ness Information Warehouse (SAP BW) Release 3.5 on-wards, it has been included in BW). Cash accounting determines the cash ow either based on an electronicbank statement or data from nancial accounting. Liquid-ity planning is carried out using the planning functionalityin SAP BW. Reporting is performed by SAP BW.

In the past, this component was part of Corporate Fi-

nance Management (CFM), and since the introduction ofmySAP Enterprise Resource Planning (mySAP ERP) in 2004,it has been located in the Cash Management and Liquid-ity Management area as part of Financial Supply ChainManagement (FSCM).

This SAP Press Essentials book outlines the concepts ofcash accounting and liquidity planning, as well as the re-sulting requirements that a business software must beable to meet. In this book, the authors demonstrate how

you can meet these requirements using SAP LiquidityPlanner and also, how you can implement this product.Readers of this book should have a sound knowledge ofthe accounting application in SAP R/3 as well as SAP BWand SAP SEM.

Structure of the Book

Chapter 1 outlines the business principles and providesclear denitions of the terms used in the context of cashaccounting and liquidity planning. In addition, the con-cept of cash accounting is introduced, along with a de-scription of its interdependencies with accounting. In thenal sections of this chapter, we clearly distinguish SAPLiquidity Planner from SAP Cash Management.

Chapter 2 describes a case study that is referred to andfurther developed throughout the book. We use this ex-ample to help you understand the functionality and thetechnical concept of SAP Liquidity Planner, but it shouldalso serve as an aide to you in implementing this compo-nent.

Chapter 3 and Chapter 4 contain a detailed descriptionof SAP Liquidity Planner. They provide an insightful intro-duction to the two main areas of the product: Chapter 3 describes Cash Accounting (SAP R/3), while Chapter 4 deals with Liquidity Planning (SAP BW). In both chapters,you will also nd detailed information on customizing

and the various functions of the application. Wherevernecessary, the case scenario is referred to, enhanced, andcompleted.

Chapter 5 describes a workaround for simplied liquid-ity planning and reporting in SAP R/3 without using SAPBW.

Chapter 6 addresses possible developments and futurerequirements of SAP Liquidity Planner. The Appendix con-tains additional information.




Introduction

Acknowledgments

SAP is a registered trademark of SAP AG, Dietmar-Hopp-Allee 16, D-69190 Walldorf. We would like to thank

SAP AG for its permission to use the trademark and thematerials provided in this book. Note that SAP AG, how-ever, is not the publisher of this book nor is it responsiblefor the contents of this book.

We would like to express our deepest gratitude to ourcolleague Robert Bieber who supported us with numer-ous tips and invaluable information.



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1 Business Overview

In this chapter, we will rst dene and differentiate cashaccounting and liquidity planning . This is a rather impor-tant step in understanding these concepts as they are of-ten used in a multitude of ways. Next, we‘ll describe thetasks performed by cash accounting and liquidity plan-ning. Because cash accounting and general accountingare inherently interrelated, we should point out their in-terrelationships. Lastly, we’ll describe the differences be-tween cash accounting and SAP Cash Management.

1.1 The Concept of Cash Accounting

In business literature, you’ll nd countless discussionsabout the concept of cash accounting and its denition. Inthese discussions, you’ll also encounter the followingterms: cash budget management , ow-of-funds analysis ,and cash ow statement , as well as cash ow accounting .

Cash accounting records the changes of cash ows , cashows being incoming and outgoing payments of liquidfunds such as cash in hand and bank savings.

In accordance with national and international account-ing standards such as FASB and IAS, we will use the term“cash ow” in this book to describe the changes in themeans of payment. Liquidity is therefore referred to as anancial accounting-related concept. Within a certainperiod, cash accounting records transactions that have adirect inuence on the stock of liquid funds, regardless ofthe period the payments refer to (see Geuppert 2003,p. 8). This type of recording and displaying of cash owscan be compared to scal accounting, which is used inthe public sector.

Therefore, cash accounting distinguishes itself from ac-crual accounting and cost accounting . Figure 1.1 illustrates

Incoming/Outgoing Payments

Expenditure/Revenue

Expense/Profit

Costs/Benefits

Cost and Activity Accounting

Data Source(SAP)

CashAccounting

Accounting

Controlling

Cash Accounting

Profit and Loss StatementCash Basis Accounting

Figure 1.1 Cash Accounting in the Context of General Accounting (according to Baetge 1992, pp. 3)




1 Business Overview

the basic differences between the various types of ac-counting.

In addition, it is now apparent that in business theory,cash accounting always refers to several periods. This

concept is generally adopted by SAP Liquidity Planner.Because the SAP Liquidity Planner component consists oftwo applications (see Section 3.1), the rst application,SAP Actual Calculation, refers to past and current peri-ods, while the other application, SAP Liquidity Planning(SAP BW/SEM), considers future periods.

Cash Accounting Liquidity Planning

past futurecurrentperiod

t

Retrograde Determination Reciprocal Determination

Figure 1.2 Time-Based Delimitation of Cash Accounting andLiquidity Planning

1.2 Tasks of Cash Accounting and LiquidityPlanning

The primary task of cash accounting is to provide infor-mation on a company’s solvency and internal nancingpotential. Apart from that, it serves as a basis for the cre-ation of ow-of-funds analyses and plannings . Comparedto the balance sheet and the prot and loss statement,cash accounting enables you to better assess the nancialsituation of a company.

The ability to generate sufcient liquid funds from its

business activities and to secure these funds in future pe-riods is one of the prerequisites for a company to survive( static aspect ) (Amen 1999, p. 4). Cash accounting sup-ports a company in evaluating its solvency status as wellas its insolvency risk.

The comparison of prot and cash ow of the W. T.Grant company, as shown in Figure 1.3, demonstrates theimportance of analyzing and determining the cash owsituation. Even though the Grant company was protable

up until one year before its insolvency, it wasn‘t able tomeet its payment obligations. However, cash ow had al-ready been negative in earlier years.

Figure 1.3 Comparison of Prot and Cash Flow at W. T. Grant

(Source: Largay/Stickney 1980, pp. 15)

The reason for such a discrepancy can be found in the dif-ferent ways in which information is analyzed by account-ing. For example, discrepancies can occur due to an in-creased stocking up of a warehouse, an expansion strat-egy that requires high investments, or by a bad overalleconomic situation during which extended terms of pay-ment are granted.

A classic example that personies this state of affairs,and is therefore frequently cited, is the situation at Chrys-ler Corporation at the end of the 1970s when Lee Iacoccaassumed the position of CEO. At that time, Chrysler hada high stock of automobiles, compounded by a low de-mand for these vehicles. The cash ow situation was verycritical (see also the section in the Appendix, Lee Iacoccaand Cash Flow , or Iacocca 1984, pp. 200).

These two examples (i.e., W. T. Grant and Chrysler)clearly show that in order to evaluate the degree of sol-vency, cash ow is a far better indicator than the prot ofa company.

Usually a company‘s external nancing potential , forexample, by acquiring external capital , is rather limited.Due to the size of the company or its current situation(for example, high debt-equity ratio), external nancingcan become increasingly difcult. For this reason, the in-ternal nancing potential plays an increasingly importantrole within the range of different nancing possibilitiesfor a company ( dynamic aspect ) (Amen 1999, p. 4).Internal nancing potential means that a company can



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1.3 Recipients and the Need for Information

generate more revenue than expenditures from its activi-ties. This potential is also referred to as internal nancing

strength . If a company can continuously build up liquid-ity, in addition to conducting its regular business activity,

this surplus is called strategic liquidity .To obtain universally valid and comparable informa-

tion on the degree of solvency of a company, the internalnancing potential and the overall nancial situation, na-tional and international accounting principles require

ow-of-funds analyses or cash ow statements as proce-dures and display formats. Here a distinction is made be-tween indirect and direct procedures. In this book wewill only describe the direct procedure since cash ac-counting doesn‘t support the indirect procedure. There-fore, direct procedure will be a critical part of this book.You can nd an example of the indirect procedure, whichis supported by accounting (SAP FI), in the Indirect CashFlow section in the Appendix of this book.

According to national and international regulations,the ow-of-funds analysis can be divided into three ar-eas:

Cash ow from operating activities Cash ow from investing activities Cash ow from nancing activities

According to IAS 7, the basic structure of a ow-of-fundsanalysis could look as follows (Kütting/Weber 2001, pp.467):

Cash ow from operating activities+ Incoming payments from customers– Outgoing payments to suppliers= Cash ow from operating activities (1)

Cash ow from investing activities+ Incoming payments from asset retirements– Outgoing payments for asset acquisitions+ Incoming payments from nancial asset retirements

– Outgoing payments for investments in nancialassets

= Cash ow from investing activities (2) Cash ow from nancing activities

+ Incoming payments from equity allocations– Outgoing payments to company shareholders+ Incoming payments from borrowings– Outgoing payments for loans= Cash ow from nancing activities (3)

The total of the three areas represents the total cash ow of the company. The cash ow statement is an essentialpart of quarterly and annual reports since it meets the in-formation needs of various recipients (see Section 1.3).

1.3 Recipients and the Need for Information

According to the Financial Accounting Standards Board(FASB), the major recipients of cash accounting informa-tion that is contained in a cash ow statement are the fol-lowing groups (FASB 1978, para. 25):

Investors, lenders, suppliers, employees“To investors, lenders, suppliers, and employees, a busi-ness enterprise is a source of cash in the form of divi-dends or interests …, repayment of borrowing, pay-ment for goods or services, or salaries or wages. Theyinvest cash, goods, or services … expect to obtain suf-cient cash in return …”

Customers“To customers, a business enterprise is a source of goodsor service, but only by obtaining sufcient cash to pay forthe resources it uses—and to meet its other obligations—can the enterprise provide those goods or services.”

Management“To managers, the cash ows of a business enterprise area signicant part of their management responsibilities,including their accountability to directors and owners.”

Figure 1.4 illustrates the major important relationshipsbetween a company and its business partners in terms ofactivities and liquidity.

Due to the different kinds of business relationships,each of the involved parties has a specic need for infor-mation with regard to cash accounting. The following listcontains the most important items (Geuppert 2003, pp.10, and FASB 1978, para. 24):

For management Ensuring solvency by optimizing cash ow based

on short-term and long-term liquidity planning Determining the internal nancing potential,

building up strategic liquidity, and determining re-quirements for external nancing

Determining nancing requirements for plannedinvestments and integration in cash accountingand liquidity planning




1 Business Overview

Ensuring creditworthiness, particularly with regardto the requirements of rating agencies

For investors and lenders (equity providers and pro-viders of external capital)Assessing the ability to pay dividends, interest, andamortization

For suppliersEvaluating the creditworthiness and solvency andforecasting the payment behavior based on theseevaluations

For employeesEvaluating the creditworthiness, solvency, and futureexistence of the company

For customers

Assessing the delivery reliability and the consistencyof conditions

The different recipients—and therefore varying informa-tion needs—demonstrate the importance of cash ac-counting and liquidity planning.

1.4 Financial Accounting and Cash Accounting

The data source (see Figure 1.1) for cash accounting is theposting material in nancial accounting. In nancial ac-counting, cash accounts, balance sheet accounts, andprot and loss accounts (P&L accounts) are interrelated;therefore, we can also speak of a threefold accountingsystem. This account-based integration 1, as shown in Ta-ble 1.1, enables you to determine the cash ow requiredin cash accounting.

Chart of accounts

Cash accounts Balance sheetaccounts

P&L accounts

Cash accounting Balance sheet Prot and loss

statement

Reve-nues

Expen-ditures

Assets(withoutliquidfunds)

Liabili-ties

ExpenseProt

Cash balance P&L account

Table 1.1 The Three Parts of Accounting

Investors

Lenders Suppliers

Company

Employees Customers

Activity Cash Flow

Investment Dividends andWithdrawals

Payment ofActivity

Payment ofActivity

Payment ofActivity

Amortization andInterest Payments

Loan

Figure 1.4 Cash Inow and Cash Outow from a Company‘s Perspective (according to Geuppert 2003, p. 10)

1 Accounting and consequently ERP systems are structured according tothe principle of double-entry accounting. A triple-entry accounting sys-tem hasn’t been implemented yet.



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1.5 Differences to Cash Management

In addition, business transactions related to accountingcan be classied as affecting net income and not affectingnet income , and as having an effect on liquidity and havingno effect on liquidity (Gebhardt 1999, pp. 21). The pay-

ment of a dividend, for instance, is a transaction that af-fects the net income and the liquidity; therefore, it is rel-evant for both cash accounting and the prot and lossstatement. The depreciation of an asset merely affects thenet income, but not the liquidity. This distinction makesit easier to determine the source of funds and their appli-cation. Figure 1.5 illustrates the relationships betweenthe individual accounts in nancial accounting.

Here you can see that there are 14 different accountassignment types available to post business transactionsin accounting. For each account assignment type, wehave provided an example (the following numbers corre-spond to the posting example used in Figure 1.5):1. Cash payment for ofce equipment2. Revenue from cash sales3. Depreciation of tangible assets4. Posting of supplier invoice5. Invoicing of an activity6. Dissolving of provisions7. Revenues from invoices8. Borrowing9. Payment of supplier invoices10. Cash payment for material purchases11. Accounting exchange on the assets side12. Contribution in kind from shareholders13. Clearing of receivables and payables14. Accounting exchange on the liabilities side

It is apparent that the connection between two accountassignment types demonstrates the source or applicationof funds . This is because the central task of cash account-ing is the “What for” search: “What have funds been re-

ceived or paid for?” Let‘s try to clarify this with anotherexample.

In the accounting department of a company, a sup-plier invoice (1) is posted. The posting displayed in Figure1.5 affects the net income, but has no effect on liquidity.This is further claried by the posting example in Table1.2.

Bank VendorOfceequipment

$ 100 (2) (2) $ 100 $ 100(1)(1) $ 100

Table 1.2 Vendor Payment

Then the open item is paid (2). According to Figure 1.6,this transaction has an effect on the liquidity, but not onthe net income.

Only when these two postings haven been linked witheach other can you determine the cash ow according toits application. One hundred dollars ($ 100) was used forofce equipment. This posting is a simple example of thedirect determination of a cash ow.

1.5 Differences to Cash Management

In this section, we’ll describe the primary differencesbetween Cash Management and Liquidity Planner. SAPCash Management is focused on short-term cash manage-

Figure 1.5 Accounting-Relevant Linking of Cash Accounts, Balance Sheet Accounts, and P&L Accounts




1 Business Overview

ment , whereas SAP Liquidity Planner considers mediumto long-term liquidity planning .

Cash Management provides information on the cur-rent bank account status and it contains a liquidity fore-cast regarding incoming and outgoing payments from theperspective of payments for accounts receivables and foraccounts payables (or write: payments to customer andto vendor). The bank accounts in the general ledger con-stitute the data basis for the bank account status. If abank account shows a current status of $ 500, this statusis displayed in the bank account status in Cash Manage-ment. The liquidity forecast uses accounts receivable and

accounts payable as a basis. It evaluates the open itemsof suppliers and customers, and the terms of paymentstored with the respective documents, and displays thisinformation in the liquidity forecast. A cash ow is notdetermined, because only the open items are evaluatedand displayed. In addition, the cash ows to be expectedcan be displayed only with regard to specic customersand customer groups, or suppliers and supplier groupsrespectively. The only information that can be deter-

mined is “From whom” and “For whom.” What the fundsare paid for cannot be identied. Conversely, cash ac-counting refers to real cash ow and the source and ap-plication of funds can be identied. Unlike Cash Manage-ment, cash accounting requires all general ledger ac-counts that have an effect on liquidity , as described inSection 1.4.

Moreover, cash accounting is part of an overall processthat consists of cash accounting and liquidity planning,which will be described in further detail in Chapters 3and 4.

Table 1.3 contains a list of the most important differ-

ences:

Cash Management Cash Accounting

No consideration of cash ow Real cash ow consideration

No identication of sourceand application of funds

Identication of source andapplication of funds


Customer Group XCustomer Group Y

Vendor Group XVendor Group Y

…

…

RevenueLiquid Tangible AssetsOther…

MaterialPersonnelTaxes…

Opening BalanceCash Management and

Forecast

Closing Balance Closing Balance

Revenues Revenues

Expenditures Expenditures

Figure 1.6 Distinction Between Cash Management and Cash Accounting

Table 1.3 Differences Between Cash Management and CashAccounting



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1.6 Conclusion


Accounting as the datasource, but only bankaccounts and subledgers

All relevant accounts of cashaccounting chart of accounts asdata source

Liquidity forecast (based onopen items)

Forecast of revenues and expen-ditures possible (based on openitems)

View: Vendors and customers(groups) and bank accountstatus

View: Revenue and expenditureitems

No integration in planningprocess

Integrated planning process(SAP BW/SEM)

Table 1.3 Differences Between Cash Management and CashAccounting (cont.)

1.6 Conclusion

In the following chapters, we dene the concepts ofcash accounting and liquidity planning and introducethem in the context of different accounting types.Moreover, we describe the group of recipients andtheir need for information regarding cash accounting,and we highlight the interdependencies with account-ing by clarifying how you can use the information fromaccounting to determine your cash ow situation.Finally, we describe the differences between SAPLiquidity Planner and SAP Cash Management to out-line the tasks performed by SAP Liquidity Plannerwithin the FSCM product portfolio.



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2 Case Scenario: Implementing Cash Accounting andLiquidity Planning

Based on a specic real-life situation that we’ve encoun-tered several times, we will build up a scenario for imple-menting SAP Liquidity Planner. In the subsequent chap-ters, this case scenario will be further developed in parts.This example is used to support your understanding ofthe functionality and the technical concept of SAPLiquidity Planner, but it will also serve as an aide in help-ing you to implement this component.

The initial situation looks as follows: We’ll consider aninternational corporation, the IDES Group, which is struc-tured as follows:

The corporate headquarters is in Germany. The cen-tral departments of corporate accounting and globaltreasury are also located in Germany.

Legally independent production sites exist in Ger-many and Eastern Europe.

The sales and distribution network stretches acrossEurope and the US, with legally independent salescompanies in the respective countries.

Research and development is located at corporateheadquarters in Germany.

IDES uses SAP as its standard business software withthe currently implemented applications:

SAP FI for accounting SAP CO for controlling SAP SD for sales and distribution SAP MM for materials management

SAP PP for production Concerning ofce applications, IDES uses a standard

off-the-shelf ofce software.

The current business situation of the IDES group can bedescribed as follows:

Existing products have been introduced and distri-buted throughout the markets and will continue tobe distributed at the same high level for the next two

or three years. However, the company expects a de-crease in prices in the long run. This means that therevenues from its core business will go down ( cashinow reduction ). At the same time, the companyforecasts a strong increase in raw material prices andrising labor costs at the production sites. This willlead to a situation in which the expenditures in pro-duction will increase dramatically ( increase in cashoutow ). Consequently, net cash ow will be stronglyreduced in the coming years.

Furthermore, company management expects productimitations to enter the market in two or three years,which could lead to price wars and further aggravatethe situation. For this scenario, corporate manage-ment expects an even stronger reduction of net cash

ow . In the preceding year, the company acquired a US-

based competitor in order to strengthen its marketposition abroad. This acquisition was nanced with alarge bank loan that will be amortized within the next10 years. So, for a period of 10 years, there will bepayments for amortization and interest ( increasingcash outow ).

Corporate management realizes that a continued pursuitof its existing strategy can quickly lead to a negative cashow situation; however, since the company is expected

to remain sound, the management decides to develop acomprehensive strategy that should include the factorsmentioned above:

Future competitors will be met with a product offen-sive at an early stage. For this reason, investmentsshould be made for the research and development ofnew products. At IDES, the development of a prod-uct takes two years. To cover R&D for this period, the

171282673 Sample SAP Liquidity Planner

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