Material Ledger in SAP S/4 HANA for beginner ( Interview Q & A ) By SM@SAP

 Material Ledger:- Definition:

Material Ledger is a Tool that collects transaction data for materials whose master data is stored in material master.

The material ledger uses this data to calculate prices to valuate these materials.

The material ledger is the basis of actual costing. It enables material inventories to be valuated in multiple currencies and allows the use of different valuation approaches.

In this blog, the approach in understanding Material Ledger is to keep it simple,  that ML(Actual Costing) is another sub-ledger and the configuration mapping is required to achieve the business requirements from Inventory Valuation and reporting perspective. If we approach with this objective, it keeps us less overwhelmed in our understanding.

Beginners Myths about Material Ledger:

• ML is considered to be more complex and complicated topic to understand.
• ML is having many complex terms to understand
• Material Ledger and Actual Costing both should be active etc.

Concept of Material Ledger:- Must Read....

We think ML is heavy, the basic reason to have such a thinking is the functionality moves around voluminous transactions covering across Procurement, Production Planning, Operations and Controlling. It will touch across the lifeline of the Material’s journey in SAP landscape.

If we draw a comparison, Closing Balance of Fixed Asset depends on many factors like acquisitions, reitrements, useful life, depreciation key, depreciation postings etc. In same fashion, the closing value of Material is influenced by many factors such as its Price set up, receipts/invoice/consumption etc in its journey in SAP Landscape.

We  have Different Depreciation Areas based on Ledger Group/Accounting Principle etc for varied business requirements. In the same way, Material ledger(Actual Costing) will have different valuation views(3) for varied business reasons.

Sub Ledger Concept:-

Sub-Ledger Functionality:- General Ledger represents the record keeping system for Company’s Financial data in the form of Debit/Credit item records posted. And the GL is validated by a Trial Balance.

Trial Balance is the closing balance of all GL Accounts for a given Date

Balance Sheet represents the financial position as on Date.

Now, our high-level fundamental concepts in place. We will go to the one level below General Ledger ie., Sub-Ledger,  below this level is the Journal Entry Postings.(either within FICO or through integrated postings). Please note some document numbers in CO/ML will appear  as Alphanumeric based on the business scenario/transaction, it is SAP derived based on internal algorithms.

Data Flow from Transaction Posting to Balance sheet:-

Material Ledger/Actual Costing is one of the Sub-ledgers both from FICO perspective and from Inventory Management Perspective.

Material Ledger/Actual Costing is a Sub-Ledger like AP, AR, Fixed Assets – this gives us some relief indicating ML is just a sub-ledger and we are talking about this sub-ledger functionality. 🙂

Material Ledger as a Tool fulfills two basic objectives:

1. ability to manage material prices in multiple currencies/valuations,
2. actual costing.

How to help the ML sub ledger  to the business:-

1. Inventory Valuation/revaluation
2. Visibility of Price changes
3. Updating Standard Cost with Actual Prices (optional)
4. Periodic Unit price etc.

What is means of multiple currencies in ML?

Multiple currencies or Parallel Currencies is a functionality that allows to record transactions in multiple currencies. It does not mean that user has to enter multiple currencies each time they post a document.

To keep this concept simple, lets take an Example for a Company Code A

Company Code Currency1:  USD

Company Code: Currency2: GBP

Transaction/Document Currency: CAD

If a transaction is posted in CAD say 100$ CAD, we can see the FI document in document currency, company code currency, group currency. This is the simple of multiple currencies/parallel currencies.

Some Technical Information:-

In S/4 HANA,we can have 8 user defined currencies and two fixed currencies (Local and Global).

Some technical info – you will know once we lookinto ACDOCA table.

Local Currency: Company Code Currency (ACDOCA-HSL)

Global Currency/Controlling Area Currency: (ACDOCA-KSL)

User Defined/freely defined: (ACDOC- OSL, VSL, BSL, CSL, DSL,ESL, FSL, GSL).

In ACDOCA table, we can clearly see the field name as Amnt in CompCd Crcy, Amnt in Gl. Crcy, Amount in currency1,2,3…8

Tcode: FINSC_LEDGER for currency settings.

Even though, 2 fixed &  8 additional currencies allowed – For ML only three currencies are allowed as we have three valuation views.

Material Ledger without Actual Casting:-

It means only Material ledger is active and Actual costing is not active. Indicates that inventories are not valued at Actual Cost based on the Actual Costing Runs.

Material Ledger with Actual Casting:-

It indicates inventories are valuated at actual cost.

Materials are valued at Standard Price which is then adjusted to reflect the difference between the preliminary price and cost.

Each transaction that is relevant to valuation (such as goods receipt, invoice receipt, or production order settlement) records at standard price and the variances against that price such as price difference, exchange rate differences).At the end of the period, these varainces are assinged to Inventories and consumption of the period across multiple production levels. Material Valuation is therefore based on the periodic actual costs.

Important Point:-

In Material Master, accounting tab1 – Price determination: 2 OR 3 determines the actual costing.

If the material is having price determination as 2 (Transaction based)- the price difference gets posted to FI and will not participate in inventory valuation at actual cost, still we can see the data of these materials in Material Price Analysis tcode CKM3N.

The key concepts to understand here are:

1. Price Determination in Material Master Accounting-1 tab
2. Revaluation of Consumption
3. Periodic Unit Price
4. Actual Costing cockpit (CKMLCP) note in S/4HANA AVR is a part of CKMLCP.

We have the option to default the price det either to 2 or 3 in activation of ML (Tcode: OMX1)

I could not able to cover these concepts in this blog as i want to keep this blog simple and brief – giving the overview of ML functionality.

Thanks & Regards

Shashi Maurya