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The setting up of financial accounting occurs when SAP Business One is first implemented. During implementation, your partner, tax advisor, and accountant follow GAAP and country or state regulations to set up financial accounting.

Once you have determined your financial or posting periods and account segments, if any, you create your chart of accounts. A chart of accounts lists all of a company's general ledger (G/L) accounts and is the basis for its reporting and posting activities.

Drawers, Titles, and Active Accounts

Accounts are organized hierarchically according to drawers, titles, and active accounts. The organization of the chart of accounts follows GAAP in which there is a separate “drawer” for accounts representing assets, liabilities, equity, revenues, cost of sales, expenses, financing, and other revenues and expenses (see level 1 in the figure). Within each drawer, you organize your accounts by level in a logical fashion appropriate to your financial accounting processes. Drawers are the organizational unit on the top level. You cannot change the predefined drawers provided with SAP Business One.

Every G/L account is defined as either a title account or an active account. A title account groups together all of the active accounts below it (see level 2, 3, and 4 in the figure). In financial reports, a title summarizes all of the balances of each active account below it. Active accounts contain postings of transactions (see level 4 and 5 in the figure). You can differentiate titles and active accounts by their text color: titles appear in blue, active accounts appear in either green or black. Green accounts are control accounts that have been defined as default G/L accounts for automatic posting of transactions in SAP Business One. Black accounts are those active accounts that have not been selected in G/L account determination. For more information, see G/L Account Determination.

The number of levels in your chart of accounts may depend on your localization and common business practices. Some countries have a legally required number of levels.

SAP Business One provides predefined charts of accounts for individual countries based on local requirements. Discuss with your partner which predefined chart of accounts to use, and what additions and adjustments are necessary for your company.

This graphic is explained in the accompanying text.

Example of a Chart of Accounts Structure