What is cash flow approach in SAP FS-BA-PM-AFP - Accounting for Financial Products?

SAP Term: cash flow approach

• Component: FS-BA-PM-AFP

• Component Name: Accounting for Financial Products

• Description: Approach used in funds transfer pricing in which the TFP rate is computed from the main payment dates.

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• Key Concepts: 
  Cash flow approach is a method of accounting for financial products in SAP Financial Services – Bank Accounting – Portfolio Management – Accounting for Financial Products (FS-BA-PM-AFP). This approach is based on the concept of cash flows, which are the inflows and outflows of money associated with a financial product. The cash flow approach allows for the tracking of all cash flows associated with a financial product, including payments, interest, fees, and other transactions. 
  
  How to use it: 
  The cash flow approach is used to track the financial performance of a financial product over time. It allows for the calculation of the net present value (NPV) of a financial product, which is the difference between the present value of all future cash flows and the cost of acquiring the product. The NPV can be used to determine whether a financial product is profitable or not. Additionally, it can be used to compare different financial products and determine which one is more profitable. 
  
  Tips & Tricks: 
  When using the cash flow approach, it is important to ensure that all cash flows associated with a financial product are accurately tracked. This includes payments, interest, fees, and other transactions. Additionally, it is important to ensure that all cash flows are recorded in the correct currency and at the correct exchange rate. 
  
  Related Information: 
  The cash flow approach is closely related to other accounting methods such as accrual accounting and fair value accounting. Accrual accounting records transactions when they occur rather than when they are paid or received. Fair value accounting records assets and liabilities at their current market value rather than their historical cost.