SAP Applications - Essay Example

SAP s Qn SAP is an application that was originally built to enable users interacts with a common corporate database for comprehensive range of applications. Currently, SAP applications are built around the latest R/3 system that provides the application with capability to manage an organization’s finances, assets, and cost accounting information related to production operations, materials, personnel, plants and documents that have been archived (Periodic Allocations). It is an integrated enterprise resource planner that can be utilized by business organizations to manage financial and other resources of a company effectively. In allocating costs, SAP utilizes transaction based and periodic allocations. Periodic allocations are generally known as periodic reposting methods. Periodic reposting enables the user to adjust postings transferred to cost centers, business processes or internal orders. Transaction postings made under periodic reposting yield similar results to those posted under transaction based reposting (Periodic Allocations). Under periodic allocation, reposting has an effect felt only once on actual costs incurred at the end of the period. Postings are usually made on costs related to controlling, which include telephone, postal charges, and insurance costs that are all accounted for in financial accounting. These costs incurred are then posted to an allocation cost center or a specific business process. Periodic reposting widely uses distribution and assessment allocation, and indirect activity allocation method. Under distribution and assessment methods, primary and secondary costs are allocated from cost center accounting and activity based costing. Allocations can be based on costs or quantities where the user is dealing with indirect activity allocations. The costs or quantities are collected on a cost center during the accounting period and allocated to receivers according to keys defined by the user. These are the same methods used in indirect allocation method except that exchange of activities is not the basis of allocating costs or quantities. In indirect allocation, distribution and assessment methods utilize user defined keys such as amounts, percentages, statistical key figures or assignment basis provided for by the amount posted. Distribution and assessment methods define keys as well as the sender and receiver relationships only once; therefore being easy to use. Methods are also advantageous over direct allocation methods in that they can be used for cost centers (Periodic Reposting). Direct cost allocation cannot be used for cost centers as they lack clarity on defining types of individual activities, have a variety of transactions and it time consuming and tedious when making all those entries involved. For example, in periodic allocations, costs related to telephone are collected on the center concerned with clearing for each period. These costs are then distributed at the end of the period based on the number telephone units or installations in each cost center (Periodic Reposting). Qn.2 CO documents are those documents available to the company for financial accounting. These documents are mostly used for control purposes by the management. These documents include invoices and memos for utilization by customers and vendors. Included in this list are vendor and customer payment as well as general document whose transactions are posted in the general ledger account(Periodic Reposting). Financial accounting (FI) deals with analyzing finances available to the business and presenting the analysis in a balance sheet and income statement among other financial statements. In financial accounting, memos and invoices are classified as source documents. These source documents are utilized in preparation of income statements and balance sheet at the end of a financial year (Principles of accounting.com). CO documents are not the original documents but are utilized a source documents since they display a complete original document so long as proper accounting entries are made. These documents can be relied on since in case of a defective line item, the use can trigger corrective postings from the report or document generated. Source documents are mostly utilized by those businesses that do not maintain complete records for their transactions. In preparation of financial statements of a business that maintains incomplete records, the accountant starts by making adjusting entries on trail balance and journal entries in the general ledger. There is need for the user to make adjusting entries before preparing the balance sheet and income statement (Principles of accounting.com). Extra information required for these adjustments will be extracted from the business CO documents that include memos, invoices and other payment documents from business’ vendors and customers. Adjustments made are then posted to the business’ balance sheet and income statement usually prepared at the end of financial year. CO documents can also keep track of a business expenses. These are expenses allocated to various cost centers within the business. CO documents are sufficient in tracing expenses that are recognized in preparation of income statement of a business. Qn.3 Depreciation is the process by which business assets lose part of their value in course of the business. When calculating the net book value of these assets, the company should deduct this value from the fair value of the assets (eHow money). Most assets lose their value over time and this means they have to be replaced at the end of their economic life. For instance, when one buys a bicycle, it is an asset to the purchaser. As the purchaser uses the bicycle, it economic life declines and so is the value. The purchaser reduces the value of the bicycle as he writes off the cost (depreciation) as an expense. For an organization to depreciate an asset it must be the property of that organization and the assets should last more than one year. Moreover, the asset should be used within the organization and it should have a determinable useful life. For instance, the company should be at a position to determine the period for which the asset will be in use. Assets lose their value due to various factors. Obsolesce is where by assets of an organization become old fashioned due change in technology. Technological advances lead to production of new and improved goods every rime, now and then. The new assets out date the old ones; therefore decrease in value of the old asset. When an item remains in company’s store for quite a long time, it cannot be sold at the same price as the new item. This is because an item tends to lose its value even if it has not been put into use for quite sometime. Moreover, other new items are brought into stock and the old stock cannot be sold at the same price with the new one. For instance, a vehicle that has remained in the showroom for more than a year cannot be sold at the same price as the one that has been in the showroom for only a day. When assets are used for some time, they are subject to wear and tear. This is where the asset tends to be worn out and calls for repairs. If it is not well maintained, then that item loses its value. An asset can also lose its value due to improper use. This happens when the asset is used for the purpose not intended on its purchase. Just like any other manufacturing company, it is possible for a bicycle manufacturing company to manage depreciation costs. In most cases, bicycles are subject to tear and wear. A bicycle manufacturing company should use simple methods in depreciating the bicycles. The company can simply use the straight line method of depreciation where it has to start by determining the useful life of its bicycles (eHow money). The residual value of the bicycle after the useful period is deducted from the cost of that bicycle. The remainder is then divided by the number of useful periods. Reference List eHow money. How Do I Calculate Depreciation of a Bicycle? N.d. 26th November, 2012. http://www.ehow.com/how_5972165_do-calculate-depreciation-bicycle_.html Periodic Allocations. N.d. 26th November, 2012. http://help.sap.com/saphelp_40b/helpdata/en/08/514e1443b511d182b30000e829fbfe/cont ent.htm Periodic Reposting. N.d. 26th November, 2012. http://help.sap.com/saphelp_46c/helpdata/en/08/514e2143b511d182b30000e829fbfe/cont ent.htm Principles of accounting.com. chapter 4: The Reporting Cycle. N.d. 26th November, 2012. http://www.principlesofaccounting.com/chapter4/chapter4.html Read More