Cost Centre Accounting Overview

Cost Center Accounting Overview

Use

We use Cost Center Accounting for controlling purposes within your organization. The costs incurred by your organization should be transparent. This requires that all costs be assigned according to their source. However, source-related assignment is especially difficult for overhead costs. Cost Center Accounting lets you analyze the overhead costs according to where they were incurred within the organization.

Dividing an organization into cost centers allows you to follow several goals, depending on the cost accounting method.

• Assigning costs to cost centers lets you determine where costs are incurred within the organization.
• If you plan costs at cost center level, you can check cost efficiency at the point where costs are incurred.
• If you want to assign overhead costs accurately to individual products, services, or market segments, you need to further allocate the costs to those cost centers directly involved in the creation of the products or services. From these cost centers you can then use different methods to assign the activities and costs to the relevant products, services, and market segments. This enables you to valuate semi-finished and finished products in Product Cost Controlling (CO-PC)

Expense Budget Planning

Cost centre planning involves entering plan figures for a particular costs (cost element) and cost centre for a particular planning period. Variances between plan and actual can be analysed using SAP’s standard reporting on real time basis.

Cost centre planning has the following objectives:

To plan the structure of the organization’s future operations for a clearly defined time period

You should define performance targets and target achievement grades. You must consider the internal and external (market) factors affecting your organization.

To control business methods within the current settlement period

This ensures that you keep as closely as possible to the plan. Iterative planning lets you adapt the target performance to reflect any changes in the organizational environment.

To monitor efficiency 

After completion of the settlement period using plan/actual or target/actual comparisons.

Cost Centre & Cost element planning will be done at start of year. This planned data will be entered in SAP. Plan v/s. Actual variance report can be extracted from SAP on real time basis. 

Expense budget planning process will be managed at cost elements in local currency. Budget process will be managed in standard SAP transactions.

Actual Cost booking

Primary costs can be transferred to Cost Accounting from other components, for example, Materials Management (MM), Asset Accounting (AA) and Payroll Accounting (PY). Or the primary cost can be booked manually within Financial Accounting by entering the Cost Centre manually during entry.

Period End Activities

Assessment and distribution

The Assessment/distribution is a period end activity that allocates both primary and secondary costs in the Cost Centre Accounting component (CO-OM-CCA). A cycle needs to be defined for assessment/distribution.

The basic difference in assessment and distribution is given below:

Assessment

The original cost elements are combined in secondary (assessment) cost elements. The original cost elements are not displayed on the receivers.

Sender and receiver information (sender cost centre, receiver cost centre, and so on) appears in the Controlling (CO) document.

Distribution
The original cost element (that is, the primary cost element) is retained.

Sender and receiver information (for example, the identities of the sender and receiver cost centre) is documented using line items in the CO document.

A given cycle can contain a number of segments. A segment consists of the following elements:

• Sender objects whose values to be allocated are computed using the same rules 
• Receiver objects whose allocation bases are computed using the same rules
• Information about the sender and the receiver is documented in the Controlling document
• The original cost element is retained in the receiver cost center. 

The sender-receiver relationship is defined in a cycle and the followings will be defined in the cycles:

• Cost centers or cost center groups 
• Cost elements or cost element groups

Tags#
SAP Actual cost booking
Cost Centre Accounting
Cost Centre Assessment
Cost Centre Budgeting
Cost Centre Distribution
SAP Cost Centre

Internal Order Overview

Internal Order

“Internal orders” are normally used to plan, collect, and settle the costs of internal jobs and tasks.

The SAP system enables you to monitor your internal orders throughout their entire life-cycle; from initial creation, through the planning and posting of all the actual costs, to the final settlement and archiving. 

SAP has provided following tools of analysis in the SAP Controlling:

• Cost centers: Where cost is incurred 
• Cost elements: Which cost is incurred 
• Internal Order: Purpose of spending 

The combination of these 3 axes provides the financial data with the needed level of details.


Internal orders can be used to

• Monitor the costs of short-term measures 
• Monitor the costs and revenues related to a specific service/activity 
• Monitor ongoing costs 

Internal Order Types

Order types provide the principle functionalities and codification rules for the individual orders. Given below is the further information on the two types of internal orders available in SAP:

Statistical Internal Orders: 

Statistical internal orders are used to collect cost for reporting purposes. Cost collected in a statistical internal cannot be allocated to other cost objects. Object used to monitor costs and, in some instances, revenues for an organization. You use the statistical order to evaluate costs which cannot be itemized in detail in cost element or cost center accounting.

Real Internal Orders: 

Every posting on a cost element is posted into only one “real” CO analytical object. This means that the charge could be re-allocated / transferred to another CO object afterwards.

Transaction Code: KO01

Settlement

An internal order is usually used as an interim collector of costs and an aid to the planning, monitoring, and controlling processes needed. When the job has been completed, you settle the costs to one or more receivers (cost center, fixed asset, profitability segment, and so on).

Only Real Internal Order can be settled and there is no need to settle Statistical Internal Order.

To be able to settle an order, you must have saved a settlement rule in each of the senders. This settlement rule determines where the costs are to be settled to. You can achieve this in two ways:

Settlement to One Receiver

You use this basic form of order settlement to completely settle the costs collected on the internal order. This is either to a cost center, or a G/L account under a settlement cost element. The system generates the appropriate settlement rule from the information contained in the internal order master data.

Comprehensive Settlement

Definition of a comprehensive settlement rule gives you more settlement possibilities, for example, you can: 

o   Settle costs to a wide range of receivers (project, SO, profitability segment, and so on).

o   Specify how the costs are to be distributed between receivers.

Tags#
Internal Order Settlement, Real Internal Order, SAP Internal Order, Statistical Internal Order, 

Activity Type overview

Activity Types

Activity types classify the activities produced in the cost centers within a controlling area.

Use

To plan and allocate the activities, the system records quantities that are measured in activity units. Activity quantities are valuated using a price (allocation price).

In Overhead Cost Controlling, costs based on the activity quantity of an activity type are posted separately in fixed and variable portions. When you divide the activities of a cost center into activity types, you should consider whether the costs can be allocated effectively to the activity types.

In an internal activity allocation, the quantity of the activity, such as a number of consulting hours, is entered into the SAP system (manually or automatically). The system calculates the associated cost based on the activity price and generates a debit to the receiver and a credit to the sender for both the quantity and costs. The internal activity allocation is carried out using secondary cost elements, which are stored as default types in the activity type master data.

You can restrict the use of the activity type to certain types of cost centers by entering the allowed cost center categories in the activity type master record. You can enter up to eight allowed cost center categories, or leave the assignments "unrestricted" by entering an asterisk ( * ).

An Activity type master contains following fields:

Name

Enter the name of the Activity type

Description

Enter the description of the Activity type

Activity Unit

Enter the unit of measure in which the activity will be managed. This is very important field and can’t be changed easily once various assignments are done. Hence, it is important to decide the appropriate unit of measure for each Activity type

Cost Centre Categories

Categories maintained under this field control the cost centre against which rate for activity types can be maintained (these categories are assigned in the cost centre master data) 

Activity Type Category

Enter the appropriate category. This Indicator determines the method of activity quantity planning and activity allocation.

Following options are available for activity type category

Activity type category 1 (Manual entry, manual allocation)
Activity type category 2 (Indirect calculation, indirect allocation)
Activity type category 3 (Manual entry, indirect allocation)
Activity type category 4 (Manual entry, no allocation)

Allocation Cost Element

Given below is the list of sample Activity Types that can be used:

Activity Type Code	Description	Unit of Measure
1000	Power	KWH
1100	Fuel	KG/LTR
1200	Labour	HR
1400	Depreciation	HR
1500	Machine Setup	HR

Transaction Code : KL01

Tags#
Activity Type Categories, Activity Type Master, Cost Centre Categories, SAP Activity Type, 

Cost Elements

Cost Elements

Cost Elements play a very important role in the reconciliation/alignment of costs and postings between Financial Accounting (FI) and Management Accounting/ Controlling (CO). 

There are two types of cost elements such as Primary Cost Elements, Secondary Cost Elements and Revenue Cost Elements all which have a specific purpose. The category set for a Cost Element at the time of creation will determine the transactions that can utilize the cost element.

Due to the integrated nature of SAP Systems there is a requirement to create expense accounts in Financial Accounting with corresponding primary cost elements in Controlling. Cost elements capture costs incurred within a particular accounting period. This ensures that expenses in Financial Accounting and primary costs in Management Accounting can be reconciled. Cost Elements are closely related to the general ledger accounts used in FI-GL.

The SAP terminology defines two different categories of Analytical Accounts (Cost Elements) as below:

o   The Primary Cost Elements

o   The Secondary Cost Elements

Primary Cost Elements:

The codification and description for “primary cost elements” is same as the General Ledger accounts.

Primary cost elements can be automatically created when we have a new G/L account in the CoA. Or we also have an option to keep the cost element creation manual (refer Chart of Accounts)

All P&L accounts will be created as “primary cost elements” in 3 categories:

o   Cost elements

o   Revenue element

o   Sales Deduction

No Primary Cost Element can be created with creating G/L Account in Finance module.

“Primary costs elements” are grouped under a hierarchy for reporting purposes; it enables to have a more operational view than the sequential sorted view of the Financial Accounting

This grouping will be managed with master data: cost element groups. It doesn’t require any customizing

All primary cost elements will be updated by FI posting during:

o   Invoice entries

o   Depreciation calculation

o   Etc.

We will not have any manual posting on “primary cost elements” in CO Module. So, the balance of primary cost elements will be always the same with FI balance.

If any G/L account is not created as a “primary cost element”, postings on this account will not be seen in CO module, neither in Cost Center Accounting, nor in Profit Center Accounting.

If any G/L account is created as a “primary cost element”, it will ask a CO object at the time of the posting in FI module. If we don’t enter a CO object, system will not save this data entry in order to keep FI and CO balance 100% same.

CO objects can be the followings:

o   Cost center

o   Project

o   Process Orders

o   Internal Orders

o   Service Orders

o   Etc.

In order to support our overhead reporting requirement, all expense accounts will work with “cost center” information.

Sometimes we might need to post expenses directly to the jobs (service orders or projects/WBS). In that case, 2 CO objects will be used: service order or WBS and cost center. Cost center will have the “statistical posting” just to support overhead reporting.

Secondary Cost Elements

For analytical purpose, the Controlling has additional accounts “secondary cost elements”, which are not defined in the Financial Accounting (FI module). These accounts are used to trace internal flows of allocation within the Controlling.

“Secondary cost elements” do not correspond to any G/L account in Financial Accounting, thus they are only used in Cost Controlling (CO modules).

“Secondary costs elements” can be grouped for reporting purpose. Cost element groups are considered another master data of CO module. Some of the cost element groups will be common for all entities, and each entity will have a flexibility to create their own groups according to their needs.

Standard “Secondary cost element” categories will be used in Core Design. Given below is the list of few categories for your ready reference:

Category 21 - Internal settlement: It is used for settlement from one CO object to another CO object.

Category 31 – Order/Project Result Analysis: It is used to calculate work in process for production orders, process orders and product cost collectors.

Category 41 – Overhead Rates: It is used for indirect allocations from cost center to cost objects

Category 42 – Assessment: It’s used for internal cost allocations between cost centers or different cost objects.

Category 43 - Internal Activity Allocation: Direct allocation from cost centers to Cost object

Transaction Code: 

Primary Cost Element : KA01
Secondary Cost Element: KA06



Tags#
Cost Element Categories, Primary Cost Element, SAP Cost Elements, SAP Primary Cost Element, SAP Secondary Cost Element, Secondary Cost Element, 

Vendor Master Data Overview

Vendor Master Data Overview

The Accounts Payable application component records and manages accounting data of all vendors.

Creating Vendor Master Data

The vendor master records are maintained in sub-ledger and are used in Financial Accounting and Materials Management. By storing vendor master data centrally and sharing it throughout whole organisation, it is only needed to enter it once. It gives an ability to prevent inconsistencies in master data by maintaining it centrally.

A vendor master record contains:

o   The General Data; containing the vendor’s name, address, language, region and phone numbers

o   Company Code Data; containing the reconciliation account, bank details, cash management information, payment methods and tax data

o   Purchasing data; containing his purchasing organisation data

The vendors are maintained with a unique number. any number of digits can be used and they can be assigned internally/externally. To create a master record, it is obligatory to specify an account group. The account group cannot be changed after the master record is created. 

The vendor account groups can be as given below:

Account Group	Definition	Number Range
ZD10	Vendors Group – Local Material	100001-139999
ZD20	Vendors Group – Subcontracting	140001-149999
ZD30	Vendors Group – Expenses	150001-159999
ZD40	Vendor Group – Services	160001-169999
ZD50	Vendors Group – Others	170001-179999
ZC10	Vendors Group - Capital Goods	200001-209999
ZI10	Vendors Group – Import Material	300001-309999
ZS10	Vendor Group – Stock Transfer	V1001 – V9999
ZO10	Vendors Group – One time	400001-409999
ZE10	Vendors Group – Employees	E00001-E99999

Editing & Blocking & Deleting Vendor Master Data

Editing

o   The account group cannot be edited

o   The account assignment cannot be edited

Blocking

A vendor account can be blocked and unblocked any time.

Deleting

Vendor accounts to be deleted are first marked for deletion.  No transaction figures should be stored for this vendor account. The account must be blocked for posting before it can be deleted.

Displaying Changes

The system logs all changes to vendor master records.  For each changed field, it stores the time of change, the user’s name, and the current and previous field contents.

Reconciliation Account

When any entry is posted to a subsidiary ledger, the system automatically posts the same data to the general ledger (see the following illustration). Each subsidiary ledger a reconciliation accounts in the general ledger. These reconciliation accounts ensure that the balance of G/L accounts is always matching with the sub ledger. This means that you can draw up balance sheets at any time without having to transfer totals from the sub ledgers to the general ledger. 

Transaction Code

Vendor Master Finance View : FK01
Vendor Master Purchasing View : MK01
Vendor Master centralised maintenance : XK01

Tags#

SAP Vendor Master, Vendor Account Groups, Vendor Reconciliation Account, 

Customer Master Overview

Customer Master Overview

The Accounts Receivable application component records and manages accounting data of all customers.

Creating Customer Master Data

Customer master records are maintained in sub-ledger and are used in Sales and Distribution as well as Financial Accounting. By storing customer master data centrally, it is enabled to be accessed throughout the whole organisation, and avoid the need to enter the same information twice. It gives also the ability to avoid inconsistencies in master data by maintaining it centrally. If one of the customers changes his or her address, it is only necessary to enter this change once and accounting and sales departments will always have up-to-date information.

The customer master record contains:

o   General Data; containing the data for communication with the customer, such as address, fax, region, country and telephone numbers

o   Company Code Data; containing the dunning procedures and the date of the last dunning notice, reconciliation account, grouping, tax data

o   Sales Data; containing the order processing, shipping, and billing data

Customer Master Groups can be as given below:

Account Group	Definition	Number Ranges
ZD10	Customers Group – Domestic (Sold to Party)	100001-119999
ZD20	Customer Group – Domestic (Ship to Party)	120001-129999
ZD30	Customer Group – Domestic (Bill to Party)	130001-139999
ZD40	Customer Group – Domestic (Payer)	140001-149999
ZD50	Customers Group – Sales Employees	150001-169999
ZE10	Customers Group – Export (Sold to Party)	200001-219999
ZE20	Customer Group – Export (Ship to Party)	220001-229999
ZE30	Customer Group – Export (Bill to Party)	230001-239999
ZE40	Customer Group – Export (Payer)	240001-249999
ZS10	Customer Group – Stock Transfer	C1001-C9999
ZO10	Customers Group -  One time	400001-499999

Editing & Blocking & Deleting Customer Master Data

Editing

o   The account group cannot be edited

o   The account assignment cannot be edited

Blocking

A customer account can be blocked and unblocked at any time.

Deleting

Customer accounts to be deleted are first marked for deletion.  No transaction figures should be stored for this customer account. The account must be blocked for posting before it can be deleted.

Displaying Changes

The system logs all changes to customer master records.  For each changed field, it stores the time of change, the user’s name, and the current and previous field contents.

Reconciliation Account

When any entry is posted to a subsidiary ledger, the system automatically posts the same data to the general ledger (see the following illustration). Each subsidiary ledger a reconciliation accounts in the general ledger. These reconciliation accounts ensure that the balance of G/L accounts is always matching with the sub ledger. This means that you can draw up balance sheets at any time without having to transfer totals from the sub ledgers to the general ledger. 

Note: Reconciliation account is mandatory while creation of Customer Master Data.

Tags#
Customer Account Group, Customer Master Data, Customer Reconciliation Account, SAP Customer Master, SAP Reconciliation Account,

Controlling Area

Controlling Area

Definition

A Controlling Area is an organization unit used for Cost accounting purpose. A controlling area can be assigned to multiple company codes at the same time.

Controlling Area is a very important organization unit in SAP Controlling. This organization unit contains the most important configurations required for whole controlling module.

Use

Controlling Area receives primary costs from other modules like Finance, Sales & Distribution, Material Management, Production Planning, Project Systems etc. Controlling Area has its own processing of values, which is done using Cost Elements. These costs are broadly known as Secondary Costs.

Implementation Consideration

IMG Path: Controlling > Controlling > Organization > Maintain Controlling Area > Maintain Controlling Area

Here we can create a new Controlling Area.

Upon creation of Controlling Area, following assignments/settings are to be done for the same

Name

Enter the appropriate name for the Controlling Area.

Person Responsible

Here we can assign the User ID of the person responsible for this Controlling Area.

CoCd -> CO Area (Allocation Indicator)

Here we specify whether

The controlling area will be assigned to multiple company codes

The controlling area will be assigned to single company codes. In this case, the code of Company Code and Controlling Area has to be the same. For e.g. Company Code 1000 and Controlling Area 1000.

Currency Type

The controlling area currency type determines which currency is allowed as controlling area currency and whether the CO area currency can differ from the currency of the assigned company codes.

The assignment control indicator, together with the currency type, determines the controlling area currency and whether to activate or deactivate the Other company code currency indicator. The following settings are possible:

You can select currency type 10 only if all company codes assigned to the controlling area use the same currency.

 If you select 1 as the assignment control, the system uses the default setting 10 as the currency type.

Currency

Enter the currency. If the allocation control indicator is set to 1, the SAP system makes an entry in the field automatically. If the indicator is set to 2, you must make an entry in the field yourself.

Chart of Accounts

Enter the Chart of Accounts here, note that the Company Code(s) assigned must use same Chart of Account as assigned here.

Fiscal Year Variant

Enter the Fiscal Year Variant here, note that the Company Code(s) assigned must use same Fiscal Year Variant as assigned here.

Cost Centre Standard Hierarchy

Enter the Hierarchy here.

Tags#

Activation of Components in Controlling Area, Assign COA & Fiscal year Variant to Controlling Area, Assignment of Company Code to Controlling Area, SAP Controlling Area, 

The creation of Controlling Area is further divided into Activation of Components and Assignment of Company Codes.

Activation of Components:

In this section, we have to activate the relevant components as explained below:

Cost Centres

The cost centre accounting is activated here. We have following options with regards to CCA activation

Inactive

CCA is not activated

Active

CCA is activated without limitations and cost centres can be used as account assignment objects

Active with validation

CCA is not active. Cost centers are validated against the cost center master. The cost centers can be used as account assignment objects but the relevant CO files are not updated on posting. If CCA is implemented at a later date, you can subsequently post the cost-relevant business transactions in cost centers to the relevant CO files.

Active for existence checks

Same as Active. The only difference is that the cost centers are not  created in full, but only in part using the "Rough entry" function.

Account Assignment Activity type active

This indicator controls whether the activity types can be used as account assignment objects for actual postings.

If this indicator is selected, actual primary costs can be assigned directly to the activity type of a cost center.

Order Management

This indicator controls the setting for order management

InactiveOrder are not validated and can’t be used as account assignment object.

ActiveOrder management is active without limitations. Orders are validated and can be used as account assignment object.

Active for validationsOrder management is inactive. Orders are validated against master data and can be used as account assignment objects, but the corresponding CO files are not updated.

Active for existence validationFunctions the same as indicator Active except that orders are checked to see if they exist and not whether they are allowable for the relevant posting transaction.

Commitment Management

Controls whether commitments are updated for the controlling area or not.

Profitability Analysis

Activation of Profitability Analysis is done separately in CO-PA component of Controlling Module.

Activity Based Costing

Indicates whether Activity Based Costing component of Controlling is active or not.

Profit Centre Accounting

Indicates whether PCA component of Controlling is active or not.

Projects

This indicator controls whether CO files are to be updated as additional account assignments for posting transactions that use WBS elements and networks or not.

Indicator selectedCO files are updated. The WBS element and network numbers are validated with the corresponding master data. Indicator not selectedCO files are not updated. Note that, even if you do not select this indicator, the system validates the master data for additional account assignments to a WBS element. The network number, however, is not validated.

Select this option if you are planning to implement PS Module.

Sales Order

This indicator controls the use of Sales Orders in Make to Order production.

Indicator selected

System allows following

Posting of actual costs and revenues to the Sales Order.

Production Order, Networks to settle the costs to the Sales Order Item.

Result Analysis

Indicator not selected

If the indicator is not active, the SAP system neither checks the CO object for sales order items during posting to Financial Accounting, nor updates costs and revenues to the sales order item.

Variance

This indicator activates calculation of variance.

This Indicator controls whether the system calculates price variances for primary cost postings by transaction (that is, by posting) and posts them in the Controlling component (CO). If the indicator is active, the system makes the calculations and postings.

Assignment of Company Codes

In this section we assign the Company Codes to Controlling Area. The Company codes can be assigned to controlling area if following conditions are met:

Controlling Area and Company Codes have same Chart of Accounts

Controlling Area and Company Codes have same Fiscal Year Variant

If any of above two conditions are not met, system does not allow assignment of company code to the controlling area.

Reference Material

Controlling Area I

Controlling Area II

  

Controlling Area III

Tags#
Activation of Components in Controlling Area, Assign COA & Fiscal year Variant to Controlling Area, Assignment of Company Code to Controlling Area, SAP Controlling Area,