Learn Business Area and Functional Area

December 1, 2024

108

Learn Business Area and Functional Area

Conten in this topic

Define Business Area

Introduction

In SAP, Business Area is an organizational unit used for internal reporting across company codes, enabling businesses to analyze their financial statements and profitability based on specific segments or activities. It provides a way to segregate and categorize transactions based on business activities or geographic locations.

Key Points for Business Area

Purpose:

To generate segmental financial reports such as balance sheets and profit & loss statements by activity or area.
To support internal management reporting and decision-making.

2. Cross Company Code Applicability:

Business Area can span multiple company codes, which is particularly useful in large organizations operating across various regions or activities.

3. Configuration:

Business Areas are not assigned directly to company codes but are derived during transaction postings based on rules or manual entries.

4. Example Scenarios:

A multinational company has different business area such as manufacturing, retail, and consulting.
A company wants to segregate financial data for its North and South regions.

5. Usage in Reporting:

Business Areas are often used in financial statements, cost accounting, and profitability analysis. However, with the introduction of Segment Reporting in SAP S/4HANA, the importance of Business Areas has diminished.

Advantage

Enhance flexibility in internal reporting
Better financial visibility and performance tracking for specific area.

Limitation

Business Area reporting is not directly integrated with the legal entity structure, making its usage optional in SAP S/4 HANA. Instead, Segment are now preferred for fulfilling similar reporting needs.

Configure Business Area

Define Business Area

Path: SPRO -> Enterprise Structure -> Definition -> Financial Accounting -> Define Business Areas

Create new business Area
Assign a 4-character alphanumeric code and a description for the business area (e.g. BA01=North Regiion)

Now Your Business area are created.

For use Business Area in our report we have to do following

Assign Business Areas to Transactions

Business areas are not directly assigned to company codes. Instead, they are derived during postings via the following methods:
Cost Centers: Link business areas to cost centers in controlling..
Profit Centers: Derive business areas via profit center assignments.
Manual Entry: Allow manual input of business areas during document posting.

Document Splitting for Business Areas (Optional in New GL) (Optional)

If using the New General Ledger in SAP ECC or S/4HANA, configure Document Splitting to ensure financial statements can be generated by business area.
Path: SPRO -> Financial Accounting -> General Ledger Accounting -> Business Transactions -> Document Splitting -> Define Splitting Rules

Assign Business Areas to Plants (Optional)

If your company uses the MM (Material Management) module, assign plants to business areas for integration with procurement and inventory processes.
Path: SPRO -> Enterprise Structure -> Assignment -> Logistics – General -> Assign Business Area to Plant

Testing and Validation

Post a few financial transactions to ensure the business area is correctly derived and reported in:
Balance Sheets
Profit and Loss Statements
Run reports such as F.01 or S_ALR_87012284 to verify financial statement by Business Transaction

Key Considerations:

Integration with New GL:

If using SAP S/4HANA, consider using Segment Reporting instead of Business Areas, as segments are more robust for statutory reporting.

Consistent Assignment:

Ensure consistent derivation rules for business areas in all related modules (FI, CO, MM, SD) to avoid mismatches.

Optional Usage:

Business areas are optional and primarily for internal reporting. Evaluate if they are essential for your business requirements.

Functional Area in SAP

In SAP, a Functional Area is an organizational unit used for cost-of-sales accounting and reporting. It helps classify expenses based on their purpose or function within the organization, such as administration, production, sales, or research and development. Functional Areas allow businesses to create income statements that align with specific activities.

Key Features of Functional Area

Purpose:

Used to categorize expenses by their function for cost-of-sales accounting
Supports income statement preparation in the “by function” format (e.g., production costs, marketing costs).

2. Integration:

Functional Areas are often derived from cost objects like cost centers, internal orders, or WBS elements.

3. Reporting:

Allows businesses to prepare segmental financial statements for compliance and decision-making.

4. Scope:

Unlike Business Areas, which focus on operational or geographical segregation, Functional Areas focus on the nature of expenses.

Configuration Steps for Functional Area

Define Functional Area

Path: SPRO -> Financial Accounting -> General Ledger Accounting -> Master Data -> Define Functional Area

Steps:

Create new entries for each functional area.
Assign a 4-character alphanumeric code and description (e.g. VJMM= Manufacturing, VJAM=Administration, etc.)

Assign Functional Area to Cost Centers

Path: SPRO > Controlling > Cost Center Accounting > Master Data > Create and Change to Cost Center

Steps:

Assign the appropriate functional area to each cost center based on its primary function
For example:

>> Cost Center 1001 (Marketing Department) → Functional Area: Sales

>> Cost Center 2001 (HR Department) → Functional Area: Administration

2. Derive Functional Area Automatically (Optional)

Functional Areas can be derived automatically based on:

>> Cost Center Assignments

>> Internal Order Assignments

>> Profit Centers

Configure derivation rules in Controlling (CO) to ensure accurate postings.

3. Testing and Validation

Post transactions and ensure they are correctly categorized under the appropriate functional areas.
Run reports like F.01 or custom cost-of-sales reports to validate the configuration.

Functional Area vs. Business Area

Aspect	Functional Area	Business Area
Focus	Classification of expenses	Operational/geographic unit
Purpose	Cost-of-sales accounting	Internal segmental reporting
Integration	Linked to cost centers/orders	Derived from transaction rules
Usage	Income statement preparation	Balance sheet and P&L by area