Sub Contract Accounting Entries in SAP: What You Need to Know
Subcontracting is a common business practice in which a company hires another company, or a self-employed individual, to complete a part of its manufacturing process. This process can be complex and involve several accounting entries, especially when it comes to tracking the financial transactions in SAP.
In SAP, subcontracting accounting entries include the following:
1. Creation of a Purchase Order (PO)
A PO is created when the company outsources a part of its manufacturing process to a subcontractor. This PO is considered a legal document, and it acts as an agreement between the two parties on the scope of work, delivery timelines, and payment terms.
2. Posting of Goods Issue (GI)
Goods Issue refers to the process of withdrawing materials from the company`s stock to be given to the subcontractor for processing. This entry is created in SAP to keep a record of the materials that have been transferred.
3. Recording of Subcontracting Charges
The subcontractor charges the company for its services, such as processing the materials or manufacturing a part of the finished product. The charges are recorded in SAP using the subcontracting charges account.
4. Recording of Goods Receipt (GR)
The goods receipt entry is created when the subcontractor returns the finished product or the processed materials back to the company`s inventory. It includes information on the quantity, quality, and value of the materials received.
5. Posting of Subcontracting Settlement
The subcontracting settlement entry refers to the process of settling the payment with the subcontractor for the services rendered. This entry includes information on the amount due, payment terms, and payment method.
To ensure accurate and timely recording of subcontracting accounting entries in SAP, it`s essential to follow the best practices below:
1. Ensure that all materials are available in the inventory before creating a Purchase Order.
2. Keep track of all materials sent to the subcontractor and confirm their return with the Goods Receipt entry.
3. Verify all subcontracting charges and ensure they are correct before recording them in SAP.
4. Ensure that the payment terms in the Purchase Order are followed in the Subcontracting Settlement entry.
In conclusion, subcontracting is a common business practice that requires proper accounting entries in SAP to ensure accurate financial reporting. By following best practices and creating proper entries for Purchase Orders, Goods Issues, Subcontracting Charges, Goods Receipts, and Subcontracting Settlements, companies can efficiently manage their subcontracting processes and maintain accurate financial records.