Cash Accounting and Cash Flow Planning with

SAP Liquidity Planner

Stephan Kerber, Dirk Warntje

Content
Introduction .............................................. 3

3.4

Cash Accounting Processes ................... 28

Structure of the Book .....................................

Information Acquisition from

Acknowledgments ..........................................

Assignment Mechanisms ...................... 28

Information Acquisition from

Business Overview .................................. 5

1.1

The Concept of Cash Accounting ..........

1.2

Tasks of Cash Accounting and

Manual Assignment and Manual

Transfer Posting ................................... 36

Recipients and the Need for

Information ..........................................

1.4

Information Acquisition from

Financial Accounting ............................ 31

Liquidity Planning .................................

1.3

Bank Statement Information ................ 29

Analysis Reports ................................... 36

Financial Accounting and

3.5

Cash Accounting ...................................

1.5

Differences to Cash Management .........

1.6

Conclusion ........................................... 11

Case Scenario: Implementing Cash

Accounting and Liquidity Planning .... 13
2.1

Conclusion ........................................... 37

SAP Liquidity Planner: Liquidity

Planning and Reporting
Using SAP BW/SEM ............................... 39
4.1

Modeling in SAP BW/SEM .................... 40

SAP Business Content

Conclusion ........................................... 15

......................... 40

Master Data ......................................... 45

Characteristics ..................................... 53

SAP Liquidity Planner: Liquidity

Analysis Using SAP Actual
Calculation ................................................. 17

4.2

The Liquidity Planning Process .............. 63

3.1

Overall Process and System

4.3

Extracting Actual Data .......................... 64

Integration ............................................ 17

4.4

Reporting in SAP BW ............................ 67

Technical Settings in SAP Actual

4.5

Conclusion ........................................... 69

3.2

Planning Layout in
SAP SEM-BPS/BW-BPS ........................ 54

Calculation ........................................... 17
3.3

(Cash Accounting) ................................ 19

Liquidity Planning and Reporting

Without SAP BW/SEM .......................... 71

Data Model and Master Data ............... 19

5.1

Overview .............................................. 71

FunctionalityOverview ..................... 21

5.2

Customizing .......................................... 71

SAP Actual Calculation

... 21

5.3

Master Data and Actual Data ................ 75

Tools .................................................... 26

5.4

Planning ............................................... 76

Tables ................................................... 27

5.5

Reporting ............................................. 77

5.6

Conclusion ........................................... 78

Customizing SAP Actual Calculation

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Content

Outlook ...................................................... 79
Appendix .................................................... 81
Lee Iacocca and Cash Flow ............................. 81
Indirect Cash Flow .......................................... 81
Plug-in ........................................................... 81
Case Scenario ................................................. 82

Bibliography .............................................. 83
Index ........................................................... 85

Galileo Press 2006. All rights reserved.

Introduction

This book is about money. Where does money come

you can meet these requirements using SAP Liquidity

from and where does it go? Because liquidity is one of the

Planner and also, how you can implement this product.

critical success factors for a company, it is integral to run-

Readers of this book should have a sound knowledge of

ning a business. The most important aspects of liquidity

the accounting application in SAP R/3 as well as SAP BW

are the ability to ensure solvency and generate payment

and SAP SEM.

surpluses. In this context, companies constantly try to analyze and plan their cash ow. Unfortunately, established
applications such as Accounting or Cash Management

Structure of the Book

dont provide the necessary information on cash ow re-

Chapter 1 outlines the business principles and provides

quired by companies; however, SAP Liquidity Planner af-

clear denitions of the terms used in the context of cash

fords you with the much needed relief in this area, as

accounting and liquidity planning. In addition, the con-

shown by its rst implementations in both nationally and

cept of cash accounting is introduced, along with a de-

internationally operating companies. The complex re-

scription of its interdependencies with accounting. In the

quirements placed on a retrograde liquidity analysis, a

nal sections of this chapter, we clearly distinguish SAP

decentral planning tool, and an efcient reporting were

Liquidity Planner from SAP Cash Management.

met by the use of SAP Liquidity Planner.

Chapter 2 describes a case study that is referred to and

SAP Liquidity Planner is a component that consists of

further developed throughout the book. We use this ex-

two applications: Cash Accounting (SAP R/3) and Liquid-

ample to help you understand the functionality and the

ity Planning (prior to Release 3.5, it was part of SAP Stra-

technical concept of SAP Liquidity Planner, but it should

tegic Enterprise Management (SAP SEM), from SAP Busi-

also serve as an aide to you in implementing this compo-

ness Information Warehouse (SAP BW) Release 3.5 on-

nent.

wards, it has been included in BW). Cash accounting

Chapter 3 and Chapter 4 contain a detailed description

determines the cash ow either based on an electronic

of SAP Liquidity Planner. They provide an insightful intro-

bank statement or data from nancial accounting. Liquid-

duction to the two main areas of the product: Chapter 3

ity planning is carried out using the planning functionality

describes Cash Accounting (SAP R/3), while Chapter 4

in SAP BW. Reporting is performed by SAP BW.

deals with Liquidity Planning (SAP BW). In both chapters,

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

you will also nd detailed information on customizing

nance Management (CFM), and since the introduction of

and the various functions of the application. Wherever

mySAP Enterprise Resource Planning (mySAP ERP) in 2004,

necessary, the case scenario is referred to, enhanced, and

it has been located in the Cash Management and Liquid-

completed.

ity Management area as part of Financial Supply Chain

Management (FSCM).
This SAP Press Essentials book outlines the concepts of

Chapter 5 describes a workaround for simplied liquidity planning and reporting in SAP R/3 without using SAP
BW.

cash accounting and liquidity planning, as well as the re-

Chapter 6 addresses possible developments and future

sulting requirements that a business software must be

requirements of SAP Liquidity Planner. The Appendix con-

able to meet. In this book, the authors demonstrate how

tains additional information.

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Introduction

Acknowledgments
SAP is a registered trademark of SAP AG, Dietmar-HoppAllee 16, D-69190 Walldorf. We would like to thank
SAP AG for its permission to use the trademark and the
materials provided in this book. Note that SAP AG, however, is not the publisher of this book nor is it responsible
for the contents of this book.
We would like to express our deepest gratitude to our
colleague Robert Bieber who supported us with numerous tips and invaluable information.

Galileo Press 2006. All rights reserved.

1 Business Overview

In this chapter, we will rst dene and differentiate cash

Cash accounting records the changes of cash ows, cash

accounting and liquidity planning. This is a rather impor-

ows being incoming and outgoing payments of liquid

tant step in understanding these concepts as they are of-

funds such as cash in hand and bank savings.

ten used in a multitude of ways. Next, well describe the

In accordance with national and international account-

tasks performed by cash accounting and liquidity plan-

ing standards such as FASB and IAS, we will use the term

ning. Because cash accounting and general accounting

cash ow in this book to describe the changes in the

are inherently interrelated, we should point out their in-

means of payment. Liquidity is therefore referred to as a

terrelationships. Lastly, well describe the differences be-

nancial accounting-related concept. Within a certain

tween cash accounting and SAP Cash Management.

period, cash accounting records transactions that have a

direct inuence on the stock of liquid funds, regardless of

1.1

the period the payments refer to (see Geuppert 2003,

The Concept of Cash Accounting

p. 8). This type of recording and displaying of cash ows

In business literature, youll nd countless discussions

can be compared to scal accounting, which is used in

about the concept of cash accounting and its denition. In

the public sector.

these discussions, youll also encounter the following

Therefore, cash accounting distinguishes itself from ac-

terms: cash budget management, ow-of-funds analysis,

crual accounting and cost accounting. Figure 1.1 illustrates

and cash ow statement, as well as cash ow accounting.

Data Source
(SAP)

Incoming/Outgoing Payments
Expenditure/Revenue
Expense/Profit
Costs/Benefits

Cash
Accounting
Accounting

Controlling

Cash Accounting

Cash Basis Accounting

Profit and Loss Statement

Cost and Activity Accounting

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

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Business Overview

the basic differences between the various types of ac-

up until one year before its insolvency, it wasnt able to

counting.

meet its payment obligations. However, cash ow had al-

In addition, it is now apparent that in business theory,

ready been negative in earlier years.

cash accounting always refers to several periods. This

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

Cash Accounting

Liquidity Planning

t
past

current
period

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

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

future

The reason for such a discrepancy can be found in the different ways in which information is analyzed by accounting. For example, discrepancies can occur due to an in-

Retrograde Determination

Reciprocal Determination

creased stocking up of a warehouse, an expansion strategy that requires high investments, or by a bad overall

Figure 1.2 Time-Based Delimitation of Cash Accounting and

Liquidity Planning

economic situation during which extended terms of payment are granted.

A classic example that personies this state of affairs,

1.2

Tasks of Cash Accounting and Liquidity

Planning

and is therefore frequently cited, is the situation at Chrysler Corporation at the end of the 1970s when Lee Iacocca
assumed the position of CEO. At that time, Chrysler had

The primary task of cash accounting is to provide infor-

a high stock of automobiles, compounded by a low de-

mation on a companys solvency and internal nancing

mand for these vehicles. The cash ow situation was very

potential. Apart from that, it serves as a basis for the cre-

critical (see also the section in the Appendix, Lee Iacocca

ation of ow-of-funds analyses and plannings. Compared

and Cash Flow, or Iacocca 1984, pp. 200).

to the balance sheet and the prot and loss statement,

These two examples (i.e., W. T. Grant and Chrysler)

cash accounting enables you to better assess the nancial

clearly show that in order to evaluate the degree of sol-

situation of a company.

vency, cash ow is a far better indicator than the prot of

The ability to generate sufcient liquid funds from its

business activities and to secure these funds in future pe-

a company.
Usually a companys external nancing potential, for

riods is one of the prerequisites for a company to survive

example, by acquiring external capital, is rather limited.

(static aspect) (Amen 1999, p. 4). Cash accounting sup-

Due to the size of the company or its current situation

ports a company in evaluating its solvency status as well

(for example, high debt-equity ratio), external nancing

as its insolvency risk.

can become increasingly difcult. For this reason, the in-

The comparison of prot and cash ow of the W. T.

ternal nancing potential plays an increasingly important

Grant company, as shown in Figure 1.3, demonstrates the

role within the range of different nancing possibilities

importance of analyzing and determining the cash ow

for a company (dynamic aspect) (Amen 1999, p. 4).

situation. Even though the Grant company was protable

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-

The total of the three areas represents the total cash ow

ties. This potential is also referred to as internal nancing

of the company. The cash ow statement is an essential

strength. If a company can continuously build up liquid-

part of quarterly and annual reports since it meets the in-

ity, in addition to conducting its regular business activity,

formation needs of various recipients (see Section 1.3).

this surplus is called strategic liquidity.

To obtain universally valid and comparable information on the degree of solvency of a company, the internal

1.3

Recipients and the Need for Information

nancing potential and the overall nancial situation, na-

According to the Financial Accounting Standards Board

tional and international accounting principles require

(FASB), the major recipients of cash accounting informa-

ow-of-funds analyses or cash ow statements as proce-

tion that is contained in a cash ow statement are the fol-

dures and display formats. Here a distinction is made be-

lowing groups (FASB 1978, para. 25):

tween indirect and direct procedures. In this book we

will only describe the direct procedure since cash ac-

Investors, lenders, suppliers, employees

To investors, lenders, suppliers, and employees, a busi-

counting doesnt support the indirect procedure. There-

ness enterprise is a source of cash in the form of divi-

fore, direct procedure will be a critical part of this book.

dends or interests , repayment of borrowing, pay-

You can nd an example of the indirect procedure, which

ment for goods or services, or salaries or wages. They

is supported by accounting (SAP FI), in the Indirect Cash

invest cash, goods, or services expect to obtain suf-

Flow section in the Appendix of this book.

According to national and international regulations,

cient cash in return

Customers

the ow-of-funds analysis can be divided into three ar-

To customers, a business enterprise is a source of goods

eas:

or service, but only by obtaining sufcient cash to pay for

Cash ow from operating activities

the resources it usesand to meet its other obligations

Cash ow from investing activities

can the enterprise provide those goods or services.

Cash ow from nancing activities

Management
To managers, the cash ows of a business enterprise are

According to IAS 7, the basic structure of a ow-of-funds

a signicant part of their management responsibilities,

analysis could look as follows (Ktting/Weber 2001, pp.

including their accountability to directors and owners.

467):

Cash ow from operating activities

Figure 1.4 illustrates the major important relationships

+ Incoming payments from customers

between a company and its business partners in terms of

Outgoing payments to suppliers

activities and liquidity.

Due to the different kinds of business relationships,

= Cash ow from operating activities (1)

Cash ow from investing activities

each of the involved parties has a specic need for infor-

+ Incoming payments from asset retirements

mation with regard to cash accounting. The following list

Outgoing payments for asset acquisitions

contains the most important items (Geuppert 2003, pp.

+ Incoming payments from nancial asset retirements

10, and FASB 1978, para. 24):

Outgoing payments for investments in nancial

assets

For management

= Cash ow from investing activities (2)

Cash ow from nancing activities

on short-term and long-term liquidity planning

+ Incoming payments from equity allocations

Determining the internal nancing potential,

building up strategic liquidity, and determining requirements for external nancing

Outgoing payments to company shareholders

+ Incoming payments from borrowings

Ensuring solvency by optimizing cash ow based

Determining nancing requirements for planned

Outgoing payments for loans

investments and integration in cash accounting

= Cash ow from nancing activities (3)

and liquidity planning

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Business Overview

Investors
Investment

Lenders

Loan

Amortization and
Interest Payments

Dividends and
Withdrawals

Suppliers

Payment of
Activity

Company

Payment of
Activity

Payment of
Activity

Employees

Customers

Cash Flow

Activity

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

Ensuring creditworthiness, particularly with regard

to the requirements of rating agencies

Financial Accounting and Cash Accounting

The data source (see Figure 1.1) for cash accounting is the

For investors and lenders (equity providers and pro-

posting material in nancial accounting. In nancial ac-

viders of external capital)

counting, cash accounts, balance sheet accounts, and

Assessing the ability to pay dividends, interest, and

prot and loss accounts (P&L accounts) are interrelated;

amortization

therefore, we can also speak of a threefold accounting

For suppliers

system. This account-based integration1, as shown in Ta-

Evaluating the creditworthiness and solvency and

ble 1.1, enables you to determine the cash ow required

forecasting the payment behavior based on these

in cash accounting.

evaluations

1.4

For employees
Evaluating the creditworthiness, solvency, and future

Chart of accounts
Cash accounts

Balance sheet
accounts

P&L accounts

Cash accounting

Balance sheet

Prot and loss

statement

existence of the company

For customers
Assessing the delivery reliability and the consistency
of conditions

The different recipientsand therefore varying information needsdemonstrate the importance of cash accounting and liquidity planning.

Revenues

Expenditures

Assets
(without
liquid
funds)

Cash balance

Liabilities

Expense

Prot

P&L account

Table 1.1 The Three Parts of Accounting

1 Accounting and consequently ERP systems are structured according to
the principle of double-entry accounting. A triple-entry accounting system hasnt been implemented yet.

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1.5 Differences to Cash Management

In addition, business transactions related to accounting

It is apparent that the connection between two account

can be classied as affecting net income and not affecting

assignment types demonstrates the source or application

net income, and as having an effect on liquidity and having

of funds. This is because the central task of cash account-

no effect on liquidity (Gebhardt 1999, pp. 21). The pay-

ing is the What for search: What have funds been re-

ment of a dividend, for instance, is a transaction that af-

ceived or paid for? Lets try to clarify this with another

fects the net income and the liquidity; therefore, it is rel-

example.

evant for both cash accounting and the prot and loss

In the accounting department of a company, a sup-

statement. The depreciation of an asset merely affects the

plier invoice (1) is posted. The posting displayed in Figure

net income, but not the liquidity. This distinction makes

1.5 affects the net income, but has no effect on liquidity.

it easier to determine the source of funds and their appli-

This is further claried by the posting example in Table

cation. Figure 1.5 illustrates the relationships between

1.2.

the individual accounts in nancial accounting.

Here you can see that there are 14 different account

Bank

Ofce
equipment

Vendor

assignment types available to post business transactions

$ 100

in accounting. For each account assignment type, we

have provided an example (the following numbers corre-

(2) (2) $ 100

$ 100

(1)
(1) $ 100

Table 1.2 Vendor Payment

spond to the posting example used in Figure 1.5):

1.

Cash payment for ofce equipment

Then the open item is paid (2). According to Figure 1.6,

2.

Revenue from cash sales

this transaction has an effect on the liquidity, but not on

3.

Depreciation of tangible assets

the net income.

4.

Posting of supplier invoice

5.

Invoicing of an activity

each other can you determine the cash ow according to

6.

Dissolving of provisions

its application. One hundred dollars ($ 100) was used for

7.

Revenues from invoices

ofce equipment. This posting is a simple example of the

8.

Borrowing

direct determination of a cash ow.

9.

Payment of supplier invoices

10. Cash payment for material purchases

11. Accounting exchange on the assets side

Only when these two postings haven been linked with

1.5

Differences to Cash Management

12. Contribution in kind from shareholders

In this section, well describe the primary differences

13. Clearing of receivables and payables

between Cash Management and Liquidity Planner. SAP

14. Accounting exchange on the liabilities side

Cash Management is focused on short-term cash manage-

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

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Business Overview

Cash Management

Cash Accounting

Cash Management and

Forecast

Opening Balance

Revenues

Revenues

Revenue
Liquid Tangible Assets
Other

Customer Group X
Customer Group Y

Expenditures

Expenditures

Material
Personnel
Taxes

Vendor Group X
Vendor Group Y

Closing Balance

Closing Balance

Figure 1.6 Distinction Between Cash Management and Cash Accounting

ment, whereas SAP Liquidity Planner considers medium

to long-term liquidity planning.

mined is From whom and For whom. What the funds

are paid for cannot be identied. Conversely, cash ac-

Cash Management provides information on the cur-

counting refers to real cash ow and the source and ap-

rent bank account status and it contains a liquidity fore-

plication of funds can be identied. Unlike Cash Manage-

cast regarding incoming and outgoing payments from the

ment, cash accounting requires all general ledger ac-

perspective of payments for accounts receivables and for

counts that have an effect on liquidity, as described in

accounts payables (or write: payments to customer and

Section 1.4.

to vendor). The bank accounts in the general ledger con-

Moreover, cash accounting is part of an overall process

stitute the data basis for the bank account status. If a

that consists of cash accounting and liquidity planning,

bank account shows a current status of $ 500, this status

which will be described in further detail in Chapters 3

is displayed in the bank account status in Cash Manage-

and 4.

ment. The liquidity forecast uses accounts receivable and

accounts payable as a basis. It evaluates the open items

Table 1.3 contains a list of the most important differences:

of suppliers and customers, and the terms of payment

stored with the respective documents, and displays this

Cash Management

Cash Accounting

information in the liquidity forecast. A cash ow is not

No consideration of cash ow

Real cash ow consideration

determined, because only the open items are evaluated

No identication of source
and application of funds

Identication of source and

application of funds

and displayed. In addition, the cash ows to be expected

can be displayed only with regard to specic customers
and customer groups, or suppliers and supplier groups
respectively. The only information that can be deter-

10

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Table 1.3 Differences Between Cash Management and Cash

Accounting

1.6 Conclusion

Cash Management

Cash Accounting

Accounting as the data

source, but only bank
accounts and subledgers

All relevant accounts of cash

accounting chart of accounts as
data source

Liquidity forecast (based on

open items)

Forecast of revenues and expenditures possible (based on open

items)

View: Vendors and customers

(groups) and bank account
status

View: Revenue and expenditure

items

No integration in planning
process

Integrated planning process

(SAP BW/SEM)

Table 1.3 Differences Between Cash Management and Cash

Accounting (cont.)

1.6

Conclusion

In the following chapters, we dene the concepts of

cash accounting and liquidity planning and introduce
them in the context of different accounting types.
Moreover, we describe the group of recipients and
their need for information regarding cash accounting,
and we highlight the interdependencies with accounting by clarifying how you can use the information from
accounting to determine your cash ow situation.
Finally, we describe the differences between SAP
Liquidity Planner and SAP Cash Management to outline the tasks performed by SAP Liquidity Planner
within the FSCM product portfolio.

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11

2 Case Scenario: Implementing Cash Accounting and

Liquidity Planning

Based on a specic real-life situation that weve encoun-

or three years. However, the company expects a de-

tered several times, we will build up a scenario for imple-

crease in prices in the long run. This means that the

menting SAP Liquidity Planner. In the subsequent chap-

revenues from its core business will go down (cash

ters, this case scenario will be further developed in parts.

inow reduction). At the same time, the company

This example is used to support your understanding of

forecasts a strong increase in raw material prices and

the functionality and the technical concept of SAP

rising labor costs at the production sites. This will

Liquidity Planner, but it will also serve as an aide in help-

lead to a situation in which the expenditures in pro-

ing you to implement this component.

duction will increase dramatically (increase in cash

The initial situation looks as follows: Well consider an

outow). Consequently, net cash ow will be strongly

international corporation, the IDES Group, which is structured as follows:

reduced in the coming years.

Furthermore, company management expects product

The corporate headquarters is in Germany. The cen-

imitations to enter the market in two or three years,

tral departments of corporate accounting and global

which could lead to price wars and further aggravate

treasury are also located in Germany.

the situation. For this scenario, corporate manage-

Legally independent production sites exist in Ger-

ment expects an even stronger reduction of net cash

many and Eastern Europe.

ow.

The sales and distribution network stretches across

In the preceding year, the company acquired a US-

Europe and the US, with legally independent sales

based competitor in order to strengthen its market

companies in the respective countries.

position abroad. This acquisition was nanced with a

Research and development is located at corporate

large bank loan that will be amortized within the next

headquarters in Germany.

10 years. So, for a period of 10 years, there will be

IDES uses SAP as its standard business software with

payments for amortization and interest (increasing

the currently implemented applications:

cash outow).

SAP FI for accounting

SAP CO for controlling

Corporate management realizes that a continued pursuit

SAP SD for sales and distribution

of its existing strategy can quickly lead to a negative cash

SAP MM for materials management

ow situation; however, since the company is expected

SAP PP for production

to remain sound, the management decides to develop a

Concerning ofce applications, IDES uses a standard

comprehensive strategy that should include the factors

off-the-shelf ofce software.

mentioned above:

Future competitors will be met with a product offen-

The current business situation of the IDES group can be

sive at an early stage. For this reason, investments

described as follows:

should be made for the research and development of

Existing products have been introduced and distri-

new products. At IDES, the development of a prod-

buted throughout the markets and will continue to

uct takes two years. To cover R&D for this period, the

be distributed at the same high level for the next two

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13