Peer Review 04252003

Bridging the gap between business and technology
MIT Admin 101
MIT Biz for Techies SR 3/28/2003
Agenda
Workshop Format - ad-hoc format - open & interactive - focus on knowledge transfer What is MIT? - mission - non-for-profit accounting
MIT Accounting - financial accounting - cost accounting - budgetary accounting

MIT Logistics - materials management - sales & distribution - plant maintenance
What is MIT?
Mission
To advance knowledge and educate students in science, technology, and other areas of scholarship that will best serve the nation and the world in the 21st century
Education and researchwith relevance to the practical world as a guiding principlecontinue to be its primary purpose. MIT is independent, non-for-profit, coeducational, and privately endowed. It is organized into five schools that contain 27 academic departments as well as many interdepartmental programs, laboratories, and centers whose work extends beyond traditional departmental boundaries.
Accrual MIT Structure vs Cash Basis
Non-for-Profit Organizations
Characteristics of Non-for-Profit organizations
They receive significant amounts of resources from providers who do not expect either repayment or economic benefits proportionate to resources provided. There is neither a profit motive nor an expectation of earning net income, other than providing goods or services that fulfill a social need. They do not have defined ownership interests that can be sold, transferred, or redeemed, or that convey entitlement to a share of a residual distribution of resources in the event of liquidation of the organization.
Operating expenditures
Fiscal Year 2002 Operating Expenditures (in millions) Total: 1,535.9 million
Operating revenues
Fiscal Year 2002 Operating Revenues (in millions) Total: 1,664.7 million
Show me the money!
Accounting
Financial Accounting
Luca Pacioli, 15th century monk

- typical accounting period 1 year - double entry bookkeeping
Bookkeeping
- chart of accounts - T-account - ledgers (general, subledgers)
Basis for legal reporting (FASB)

- submission of financial statements
Accounting Modules
The primary SAP R/3 application modules that support Accounting are:
Core financial accounting General Ledger as well as subledger information
Sales & Distribution Financial Accounting
Materials Mgmt.
Controlling
Production Planning
R/3
Quality Mgmt. Plant Maintenance
Fixed Assets Mgmt.
Controlling
Management accounting for tracking overhead and internal costs
Client / Server ABAP/4

Workflow
Project System
Human Resources
Industry Solutions
Accrual vs Cash Basis

Accrual basis accounting
Revenue is recorded when earned and expenses are recorded when incurred. They are recorded at the end of an accounting period even though cash has not been received or paid.
Cash basis accounting

Revenue is recorded in the accounting period in which cash is received and expenses are recorded in the accounting period in which cash is paid.
MIT is on modified accrual basis
Chart of Accounts
- balance sheet accounts - profit and loss accounts
For Balance 100000 170000 200000 300000
Sheet Accounts: 169999 Asset Accounts - Liquid 179999 Asset Accounts - Fixed 299999 Liability Accounts 399999 Fund Accounts
For Profit and Loss Accounts: 400000 499999 Expenses 600100 659999 Calculated Expenses 800000 899999 Revenue Accounts
What is a financial statement?
Financial Statement
represent a picture of the financial position of a firm at a point in time (usually at the end of a reporting period). Financial statement = balance sheet + profit & loss statement
Balance Sheet
The resources (assets), both financial and property are displayed on the left side of the balance sheet. Claims (liabilities and net assets) against those resources are displayed on the right side of the balance sheet. To balance, the assets of the firm must be equal to the claims (liabilities and net assets) against those resources.
Profit and Loss Statement

summarizes the revenues generated and expenses incurred for a given period
Sample Balance Sheet

MASSACHUSETTS INSTITUTE OF TECHNOLOGY
Balance Sheet - June 30, 2002

(in thousands of dollars) Assets Cash Account receivables Pledges receivables Contracts in progress (US Gov) Deferred charges, inventories and other assets Students' notes receivables Investments Land, buildings and equipment, at cost Total assets $ 38,839.00 $ 140,374.00 $ 339,345.00 $ 29,176.00 $ 110,398.00 $ 80,048.00 $ 6,476,513.00 $ 1,172,731.00 $ 8,387,424.00
Liabilities & Net Assets Liabilities Accounts payable Liabilities due under life income fund agreements Withholdings, deposits and other credits Advance Payments Borrowings - bonds and notes payable Government advances for student loans Total liabilities Net Assets Unrestricted Temporarily restricted Permanently restricted Total net assets Total liabilities and net assets
$ 231,920.00 $ 79,975.00 $ 30,402.00 $ 159,467.00 $ 772,034.00 $ 31,444.00 $ 1,305,242.00 $ 2,826,827.00 $ 2,976,337.00 $ 1,279,018.00 $ 7,082,182.00 $ 8,387,424.00

General Ledger (FI-GL) Accounts Payable (FI-AP) Accounts Receivable (FI-AR) Assets Management (FI-AM)
General Ledger
The ledger that contains all of the financial accounts of a business;
containing offsetting debit and credit accounts (including control accounts) Document principal Accounting data is always complete and accurate Account balances are updated each period and carried forward each fiscal year Basis for the reporting of financial statements
Sub-ledger Integration
General Ledger
Journal Vouchers (F-02)
- transactions that are used to make transfers or corrections from one account to another - MIT uses these quite regularly, but journal entries are usually used for year end corrections
MIT developed web-based JV functionality to support the DLCs

- create - change - display - clone/reverse - reporting
Accounts Payable
Records and manages accounting data for all vendors
- sub-ledger with real-time update to general ledger Integrated with the purchasing system Payments made via payment program Account balances are updated each period and carried forward each fiscal year
Types of payables?
Accounts Receivable
Records and manages accounting data for all customers/sponsors
- sub-ledger with real-time update to general ledger Integrated with the sales/billing system Payments received via lock-box Account balances are updated each period and carried forward each fiscal year
Types of receivables?
General Ledger - Demo

1. 2. 3. 4. 5. 6. 7. 8.
Display Chart of Accounts Display GL Account Display Account Balance Create JV Show JV impact Reverse JV Park a JV Show Balance Sheet (F.10) (FSP0) (FS10N) (F-02) (FS10N) (FB08) (FBV1) (F.01)
Accounts Payable - Demo

1. 2. 3. 4. 5. 6. 7. 8. 9.
Display Vendor Master Create Non PO Invoice Create Credit Memo Display Account Balance Show Open Items Make Payments Wire Transfers Show Closed Items Show Balance Sheet (FK03) (FB10) (FB10) (FS10N) (FBL1N) (F110) (ZWIRE) (FBV1) (F.01)
Who gets the bigger half?
Cost Accounting
Cost Accounting
Cost accounting is the structure
within which costs and revenues are assigned to different parts of the Institute Facilitates the coordination, monitoring and optimization of all processes in an organization Intended for internal accounting, not for external reporting purposes
CO
Cost Collectors
Cost Centers
Represents a unit of a department, lab or center Tracks costs on a fiscal year basis Tracks project costs and billings Can span multiple years (contracts) Typically represent research accounts Intended for short term cost accumulations Settled to cost centers or projects May also represent non-sponsored research accounts
CO
Projects
Internal Orders
Cost Elements
Primary Cost Elements
Used to classify revenue and expenditures Related to the GL account
CO
Secondary Cost Elements

Tracks internal activities Overhead/EB/Settlements No correlation to General Ledger
Costing Sheets
Overhead
F&A (Facilities & Administration) Direct Costs, Indirect Costs Costing Sheets Base, Rate and Credit
CO
Funds Transfers
Journal Vouchers
CO
Allows transfer of funds between GL accounts and cost objects
CO Reposting
Allows transfer of funds between cost objects and cost elements
What is the difference?
Commitments
Concept of earmarked funds Requisitions, purchase orders,
funds reservations
CO
Used for planning and budgeting

purposes
Planning/Budgeting
CO Plan
- budgets - versions - NIMBUS CO Budget - reporting benefits - actual/plan/budget
CO
Doing the right stuff
Logistics
MIT Materials Management
BUY: - via Electronic Catalog - via Procurement Card (VIP) - via Requisitions - via Purchase Orders
PAY: - receipt of invoice - manual checks - automatic checks - partner feeds - wire transfers
OTHER - inventory - goods receipt / goods issue - internal procurement
Procurement Cycle
The procurement cycle may consist of eight processes:
Purchase Order Purchase Order
8. Payment
1. Requirements determination 2. Source determination
7. Invoice verification
6. Goods receipt and inventory management
3. Requisition assigned to a Vendor
5. Order follow-up
4. Order processing
Business Process Flow for Procurement

The main documents and transactions in the Procurement
process are:
Purchase
Requisition
Purchase Order
Goods Receipt
Invoice Posting
Planning, Reporting, and Analysis

Note: Payments to vendors are usually made at specified times (e.g. at the end of the month). Payment amounts are determined according to the open invoices posted on the system.
Purchase Requisition Processing

or
Material Resource Planning
Direct Entry
Purchase Order Purchase Order Purchase Order
Purchase requisition
Release strategy
Purchase order
Determine source of supply
Purchase Orders
A purchase order is a formal request to a vendor to provide
certain materials or services under specific conditions (quantity, price, delivery date, etc.)
Purchase
Requisition
Purchase Order
Goods Receipt
Invoice Posting
Goods Receipt
When goods are received from a purchase order, the item
data is copied from the purchase order into the goods receipt document.
Purchase
Requisition
Purchase Order
Goods Receipt
Invoice Posting
Results of a Goods Receipt Posting

Transaction documents are created both for materials
management and finance.
Accounting document G/L accounts: Consumption account GR/IR account Material document Stock quantity Consumption statistics
Goods Receipt Posting
Point of consumption Cost center Order
Goods receipt slip Purchasing data: Order item, Order history

Transfer Order
Goods Receipt for Stock Material

Entering the goods receipt increases the inventory level of a
material that is procured for stock.
Purchasing documents
Items 1. 2. 3.
Goods Receipt
Warehouse / stores
Inventory Management (MM module) controls

Vendor
and records all goods movement, form purchase order receipt through the plant, to consumption
Purchase Order Processing
Purchase Purchase Order Order Direct Entry or Purchase Requisition

Purchase Order Purchase Order Purchase Req.
Standard Standard Sub contract Sub contract Consignment Consignment Third-party Third-party
Statistics Order History
Stock material Consumable material Service
Account assignment
(cost center, asset, project)
Invoice Processing
This last step in the procurement process includes invoice
verification and updating accounts payable in the FI module.
Purchase
Requisition
Purchase Order
Goods Receipt
Invoice Posting
Payment will then be made later based upon the open invoices posted on the system
Invoice Verification Environment

Invoice verification accesses data from purchasing,
inventory management, material master, and vendor master files.
G/L accounts
Purchase Order
Assets
Cost centers
Vendor Invoice
Projects Invoice verification Orders
Goods Receipt Material master

Posting an invoice in the R/3 System Posting an invoice in the R/3 System updates purchasing and accounting data updates purchasing and accounting data
Vendor master
Vendor Payment
Accounts payable reads the invoice file and pays all posted
invoices due. (Payment runs can be automated to occur at specific times.)
Vendor Bank Payment Payment program program
1000
1000
Motor Sports International

1234 Main Street New York, NY 10181
1449
Date _______________
Pay to: ________________________________________ ________________________________________________________ _______________ _________________ 12930 39040 2020 20202 10923 1449
Released Invoice
Procurement Integration
MM
Purchase Order
PP
Purchase Order
FI
FI
Goods Receipt
Invoice Verification
Invoice
MIT ECAT Buy-Pay Scenario
Sales & Distribution

The main documents and transactions in the Customer
Order Management process are:
Order
Pre-sales
Delivery
Invoice
Payments
Document flow of a sales doc. Document flow of a sales doc.

........ ........ ........ ........ Order Order Delivery --Picking request, Goods Delivery Picking request, Goods request, Delivery request, Delivery Invoice Invoice Accounting Accounting
Sales Orders
Each type of sales document represents a different type of
sales transaction. Different types of sales transactions have different business requirements.
Standard order
Credit / debit memo requests
Scheduling agreement
Consignment order
Sales document types
Cash order
Sponsor Free of charge delivery

Rush order
Billing
Billing Supports:
Creating invoices for deliveries and services Creating credit and debit memos on the basis of requests Transferring posting data to financial accounting
Invoicing usually occurs after the product has been

shipped to the customer. All the information entered for the sales and delivery documents are transferred to the invoice.
Invoices
NASA Research Center Rocket Science Experiments
EB & Overhead $123000 Suppliers $1,000,000
Developed neat booster fuel
Customer Payment
The final step of the Customer Order Management cycle. The Customer Payment step includes:
Posting payments against invoices Reconciling differences, if necessary
The processing of the customer payment is done in accounts

receivable against open items.
Puttin it all together
Integration
Transaction-Based Postings
Human Asset Resources Mgmt. Invoices
Financial Materials Accounting Mgmt.

Material withdrawals Orders Purchase requisitions
Controlling
Repostings Activity allocation Statistical key figures Funds reservation
Integration Discussion
General Ledger Budgeting / Project Systems

MASTER DATA: - Fund - Fund center - WBS element - Networks/ Activities TRANS: - Appropriation, apportionment, allotment - Sub-auth - Track funds MASTER DATA: - G/L accounts
Sales & Distribution
Purchasing
Cost
Accounts Receivable
Accounts Payable
MASTER DATA: - Customers
MASTER DATA: - Vendors - Plants
MASTER DATA: - Cost elements - Cost centers - Internal orders
MASTER DATA: - Customers - Credit records
MASTER DATA: - Vendors
TRANS: - Sales orders - Invoicing/ Billing
TRANS: - Purchase requisitions - Purchase orders - Goods/Service receipts
TRANS: - Assessments - Statistical costs
TRANS: - Create invoice - Receive payment - Apply cash
TRANS: - Enter invoice - Process & send payments
Automatic General Ledger Entries
TRANS: - G/L postings
Financial Integration in Logistics

Some of the relevant financial activities resulting from business events at the different stages in the supply chain include:
Procurement Inventory Production Sales
Commitment Inventory bookkeeping Valuation Liquidity strategies Exchange rate hedging Invoice verification Cost management Payments
Product costing Material usage Work-inprogress
Credit checking Discounting Billing Payment clearing Dunning analysis Profitability analysis Marketing budget
SAP@MIT Architecture
http://web.mit.edu/sapweb/SF2/
What did I forget?
Miscellaneous
Discussion:

Internal Service Providers VIP Card Process Sales and Distribution (sponsored billing) Plant Maintenance Assets Management/Property Budget System

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Bridging the gap between business and technology

MIT Admin 101

MIT Biz for Techies SR 3/28/2003

MIT Accounting - financial accounting - cost accounting - budgetary accounting

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

Accrual MIT Structure vs Cash Basis

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

Show me the money!

MIT Biz for Techies SR 3/28/2003

Luca Pacioli, 15th century monk

Basis for legal reporting (FASB)

MIT Biz for Techies SR 3/28/2003

Fixed Assets Mgmt.

Client / Server ABAP/4

MIT Biz for Techies SR 3/28/2003

Accrual vs Cash Basis

Cash basis accounting

MIT is on modified accrual basis

MIT Biz for Techies SR 3/28/2003

For Balance 100000 170000 200000 300000

MIT Biz for Techies SR 3/28/2003

What is a financial statement?

Profit and Loss Statement

MIT Biz for Techies SR 3/28/2003

Sample Balance Sheet

Balance Sheet - June 30, 2002

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

MIT developed web-based JV functionality to support the DLCs

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

General Ledger - Demo

MIT Biz for Techies SR 3/28/2003

Accounts Payable - Demo

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

Who gets the bigger half?

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

Secondary Cost Elements

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

Allows transfer of funds between GL accounts and cost objects

What is the difference?

MIT Biz for Techies SR 3/28/2003

Used for planning and budgeting

MIT Biz for Techies SR 3/28/2003

MIT Biz for Techies SR 3/28/2003

Doing the right stuff

MIT Biz for Techies SR 3/28/2003

MIT Materials Management

OTHER - inventory - goods receipt / goods issue - internal procurement

MIT Biz for Techies SR 3/28/2003

Purchase Order Purchase Order

1. Requirements determination 2. Source determination

Purchase Order Purchase Order