Order to Cash Cycle | SAP FI-SD Integration

This article will give you an overview of Finance (SAP FI) and Sales (SAP SD) Integration with Order to Cash cycle with accounting entries.

What is Order to Cash Cycle?
“Order to cash” or O2C cycle starts with pre-sales activity. It involves sales order from customers and ends with receiving the payment from customers.

This cycle is handled in SAP through “Sales & Distribution(SAP SD)”, “Inventory management” and “Finance and Controlling(SAP FICO)” modules.

O2C cycle deals with the entire set of activities carried out by an organization to sell its products to its customers and realization of cash. Following are activities involved:

  1. No Accounting Entries
    • Sales or Customer Inquiry
    • Quotation for Customer Inquiry
    • Sales Order Creation
  2. Account Entries
    • Post Goods Issue (PGI) (transaction: VL01N)
    • Delivery (transaction: VL01n)
    • Billing (Tax Invoice and Sales Invoice) (transaction: VF01)
    • Cash Receipts / Customer Payment (transaction: FB50)

In a regular business, the first two steps, that is Inquiry and Quotation, may or may not happen. For example, a new customer may inquire and ask for a quotation. But a regular customer may directly order without quotation.

Order-to-Cash Configuration

  • Customer Inquiry – A request for information by customer is raised which can be termed as Sales inquiry. Transaction VA11 can be used for this
  • Sales Order – PO is placed by the customer which becomes Sales Order for Organisation. Transaction VA01 can be used for this
  • Post Goods Issue(PGI)- In this step goods are being picked from warehouse, packed and shipped to the customer’s given shipping address as per the sales order.
  • Delivery:  Delivery follows Post Goods Issue(PGI) step. It is the actual fulfilment of goods to the customer shipping address.
  • Invoice – The customer account is debited with the amount of invoice after the invoice is raised
  • Receipt of Money – The final stage is a realisation of cash after invoice is raised and accepted by customers

Accounting Entries

  1. Accounting entries start from PGI (Post Good issue) that is when Goods are shipped out of Inventory.
    That is the first step of accounting entry:

Dr. Cost of Goods Sold A/c
Cr. Inventory A/c

  1. Delivery

Dr. Revenue A/c
Cr. Customer A/c

  1. After which the invoice is raised

Dr. Customer A/c (Accounts Receivable)
Cr. Sales A/c

  1. Receipt of revenue

Dr. Bank Account A/c
Cr. Customer A/c (Accounts Receivable)

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