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Why PC allocation?

To dostribute amounts from Dummy or common PC to other PCs

SAP delivers the 'Profit Center' and the 'Partner Profit Center' as fixed characteristics that are posted on the original FI postings. The data is not updated, as required, in another ledger, as in the classic Profit Center Accounting. Therefore, in new GL system will not create a separate document for profit center accounting. Using the 'Document Splitting' function (online document split), you can create balance sheets for company codes as well as for other entities such as the profit center. The balance is then set to 0 for each document for the profit center.

Profit Center Accounting is no longer a separate component in the SAP system, rather it is a dimension of the General Ledger in Financial Accounting. This means that although the Profit Center is frequently determined by the Cost Object in Controlling it is actually updated as part of the FI Accounting document. In addition this means that postings carried out in Controlling are more likely to have an impact on Financial Accounting due to the fact that they may well cross Profit Centers. In order to facilitate this update of the Profit Center two specific tools are available: . Document Splitting . Real time Integration of Management Accounting to Financial Accounting The Functional Area field is now stored in General Ledger Accounting. This means that you no longer have to activate the cost of sales ledger 0F to create a profit and loss statement for cost of sales accounting. The Profit Center field (like the Partner Profit Center field) is also managed in General Ledger Accounting. In this way, you can use General Ledger Accounting to perform management analyses. You can also use General Ledger Accounting to portray a lean version of management accounting (Management Accounting light). Cost centers and (primary) cost elements are now available as objects. The new Segment field allows to perform segment reporting.

KSB1 and in the layout insert the column "value type". Value type 4 is real actual, value type 11 is statistical actual. if you have real as well as statistiscal postings against the same CO-object always take care which value type you are reporting

Can i change statistical posting to Real posting? You have to reverse the document and post accordingly please implement EHP4 to have a separate report node for profit cneter reports in new GL.

WBS element/Cost Center/Internal Order is a real CO object where as Profit Center is a Statiscal Object. All the posting you make to the real object are real postings, paralelly statistical posting will be flown to your profit center.

Internal Orders are two types. 1. Real and 2. Statistical. Real orders get real postings and statistical orders get statistical. Statistical means information purpose only. Statistical orders cannot be settled. At the time of postings to cost elements you must have at least one real object.

Operating results for profit centers can be analyzed using either the cost-of-sales approach or the period accounting approach.

Profit Center Accounting is a statistical accounting component. This means that it takes transactional data posted in other components and represents it from a profit-centeroriented point of view. The postings to PCA are statistical postings, since the profit center is not itself an account assignment object in Controlling.
The integration of the R/3 system makes it possible to post profit-relevant data to Profit Center Accounting automatically as soon as the transaction is originally posted. The system either transfers the relevant items from the original postings or creates additional postings (for example, see Goods Movements Between Profit Centers).

CO-PA: profitability based on the market oriented objects. Profit center accounting: probability based on org structure objects.

Activating cost of sales accounting: Make the following settings in Customizing for Financial Accounting (New), under Financial Accounting Global Settings (New):


Assign the scenario Cost of Sales Accounting to all ledgers in which you want to use it.

Choose Ledgers Ledgers Assign Scenarios and Customer Fields to Ledgers. If you do not use parallel ledgers, assign the scenario Cost of Sales Accounting to the leading ledger. 2. Define your functional areas:

Choose Ledgers Fields Standard Fields Functional Area for Cost of Sales Accounting Define Functional Area. Choose Ledgers Fields Standard Fields Functional Area for Cost of Sales Accounting Activate Cost of Sales Accounting for Preparation. This means that the Functional Area field is ready for input in the master data of the objects, but the functional area is not yet derived during posting. 4. Add the functional area to the master data of the desired objects: 3. Choose Ledgers Fields Standard Fields Functional Area for Cost of Sales Accounting Enter Functional Area. For more information, see Functional Area in Master Data. 5. You can also define a substitution for deriving the functional area. Choose Tools Validation/Substitution Define and Activate Substitution for Cost of Sales Accounting.


You should only define a substitution if you have additional requirements for the derivation of the functional area. First check whether it would suffice to add the functional area to the master data of the objects. Activate cost of sales accounting for your company codes. Choose Ledgers Ledgers Activate Cost of Sales Accounting.

For cost of sales accounting to be portrayed, it must be active for the company code and the corresponding ledgers.

You have activated cost of sales accounting. The system derives the functional area of the postings. For more information, see Deriving the Functional Area. You can create a profit and loss statement according to cost of sales accounting. For more information, see Creating Financial Statements According to Cost of Sales Accounting.

Adding functional area: You can add the functional area to the master data of various objects: G/L account Cost element Cost center Orders

Order type Internal order Sales order for make-to-order production and requirements class Maintenance, service, and QM order Production order, product cost controller, and cost object hierarchy

WBS elements Project profile and project definition

WBS element

Networks Network type Network header Network activity During posting, the system derives the functional area from the master data of the assigned objects. For more information, see Deriving the Functional Area.

If you want to be able to enter the functional area in the master data of the specified objects, the Functional Area field in the master data must be ready for input. You need to have activated cost of sales accounting for your company codes or activated it for preparation. You make the settings in Customizing for Financial Accounting (new) under Financial Accounting Global Settings (New) Ledgers: Fields Standard Fields Functional Area for Cost of Sales Accounting Activate Cost of Sales Accounting for Preparation Ledger Activate Cost of Sales Accounting

The master data of the following objects is not company code-dependent, rather it is assigned to higher-level organizational units: Object G/L account Cost element Cost center category Order type In such cases, the Functional Area field is ready for input in all company codes of a client, provided that the status of cost of sales accounting is either In Preparation or Active for at least one company code of the client. Assigned organizational unit Chart of accounts Client

Deriving functional area: The system derives the functional area during document entry based on the information in the coding block. The functional area appears on the entry screen. It is derived as follows:


From the master records of the assigned objects If an object is assigned during a posting, the system checks whether a functional area has been entered in the master record of the object. The system retains this functional area provisionally. 2. From the master record of the G/L account or the cost element The system checks whether a functional area is entered in the master record of the cost element or the profit and loss account. This functional area overwrites the functional area derived from the assigned object. 3. Using substitution for the component Financial Accounting, event 0006. If a functional area has already been determined, this is overwritten with the functional area obtained via substitution. Definition of a substitution is necessary in the following cases:

If you cannot enter a functional area in the master data of an object such as business process or real estate objects. If you want to define exceptions where the system should not derive the functional area from the object.

If you remove the indicator Determine Functional Area on Entry Screen in Customizing (Financial Accounting (New) Financial Accounting Global Settings (New) Tools Customer Enhancements Enhance Determination of Functional Area), the system does not derive the functional area until you have saved the document. Consequently, it is only visible once you have saved. The system derives the functional area via substitution for the componentFinancial Accounting, event 0005.

Comparison of the two procedures for creating a profit and loss statement (P&L)

The P&L of an organization can be drawn up according to two different procedures: 1. Period accounting In period accounting, the profit and loss statement is organized according to income types and expenses type. 2. Cost of sales accounting Cost of sales accounting sets the sales revenues for the accounting period against the resulting costs of goods manufactured for the deducted service. The expenses are assigned with priority to the functional areas within the company . The expenses and revenues that cannot be allocated to the functional areas should be displayed in further P&L items organized according to expenses/income types.

Period Based Accounting versus Cost of Sales Accounting These terms come up in the SAP documentation fairly often and I frequently get asked what the difference is. There are a number of ways of explaining the differences. For the accountants it is usually enough to say the 'Period Based Accounting' is Accrual Accounting and 'Cost of Sales' is 'Cost of Goods Sold' Accounting. In CO-PA one has the option to choose or use either Account based or Costing Based CO-PA. This choice impacts the level of detail and the frequency (monthly, weekly or realtime) of reporting. What does this mean effectively to us non-accountants and practically in the SAP system? Period based Accounting "Period based" means that during the month or period, all and only actual events / transactions are posted in the appropriate period. At the end of the period estimated accruals and deferrals are made and posted to that posting period to give a more accurate view of profit. IE any expected revenues and expenditures that should relate to the current period are accrued for and equally any prepaid expenses or revenues are deferred to the next period. (Accruals and Deferrals are posted temporarily, usually to special accounts, and reversed prior to the next period end.) These accruals and deferrals are usually done at a fairly high level of summarisation (eg: at company or business area). The FI Ledgers and financial statements etc are always period based. Cost of Sales Accounting Cost of Sales in SAP means that we attempt to record or rather report the "costs of sales" against the

actual sale at as low a level as possible and during the period. (In CO-PA this is down to a transaction level.) This enables the company to get a reasonably accurate view of profitability on a real time basis. This is done by using either standards or estimates for many of the components that make up the "cost of goods sold". Any variations from the standards are usually posted through to the cost of sales system either at monthend or when they occur. For example: A product cost estimate might be used to calculate and post a manufactured cost through to CO-PA when every sale goes through. The actual production orders variances from the product cost estimate can then be settled to a separate line in CO-PA. This has the benefits that a reasonably accurate gross profit could be reported in real time at a transaction level and of course therefore at all the characteristic levels in CO-PA. the impact of any abnormal variances in production can quite clearly be seen and analysed separately from the normal profitability of a product. Table comparison GL (Period Based) CO-PA (Cost of Sales) During the Month At Month End During the Month At Month End Manufactured Cost goods issued from stock to "cost of goods sold" at stock valuation plus any stock valuation adjustments Production Estimate / unit or Stock valuation / unit applied to the number of units sold Variances can be posted as they occur preferably to a separate line for analysis Delivery Costs actual freight invoices etc posted to the period whenever they come in plus any accruals or deferrals Freight etc estimate or charge applied to each sales invoice line item Actuals can be allocated in for comparison or different m/end reporting Gross Profit not useful yet useful for profitability analysis Overhead Costs actual invoices received & posted plus any accruals or deferrals Overhead Cost Estimate used. Actuals recorded in CO, not available yet in CO-PA Actuals can be allocated in to a separate line item for comparison to Estimated Cost used Net Profit definitely not useful yet Accurate Financial Statement for company or business area useful for profitability analysis during the month May have an additional report for m/end that shows actuals / variances Profitability Analysis (CO-PA) calculates profits according to cost-of-sales method of accounting. Profit Center Accounting (EC-PCA), on the other hand, supports both period accounting as well as the cost-ofsales approach. Now it depends on the client's reqts which are the one that is required to map. In cost-of-sales accounting, the cost of sales is set off against revenue using either direct costing or full absorption methods (contribution margin accounting). Fixed costs can be allocated on a proportional basis or en bloc to any level(s) of a hierarchy. You can use standard costs to valuate the cost of sales for the purpose of obtaining a preliminary profit analysis. Or you can also transfer the variances of production orders and cost centers to Profitability Analysis in order to reconcile CO-PA with Financial Accounting (FI) on the basis of actual costs. In period accounting, the performance of a particular business unit (profit center) - that is, its revenues, changes in inventory and capitalized services - is set off against the total costs of the period. This occurs at the G/L account level and adheres to the formal structure of Financial Accounting. This gives you a uniform structure of report data and lets you reconcile the data of cost and financial accounting on the basis of cost elements. This all depends upon the initial strategy og the client & as a consultant you need to convey them

vaious ways & likely impacts from both the methods. Still, Cost of Sale accounting is more benefial if reporting is thru' CO, rather than FI point og view.

he applications Profitability Analysis (CO-PA) and Profit Center Accounting (EC-PCA) provide effective tools for analyzing profitability in your organization. This section compares the different purposes of these two applications in the SAP System and describes the different methods of profitability control.

Profitability Analysis (CO-PA)

The application CO-PA lets you analyze the profitability of segments of your market - structured according to products, customers, orders, and summarizations of these and other characteristics - and organizational units such as company codes or business areas. The aim is to provide your sales, marketing, planning, and management organizations with decision-support from a market-oriented viewpoint. CO-PA can be used by companies in any branch of industry (mechanical engineering, wholesale and retail, chemical, service industries and so on) and with any form of production (repetitive manufacturing, make-to-order manufacturing, process manufacturing). The data can be analyzed by period, or by order or project.

Profit Center Accounting (EC-PCA)

The application EC-PCA lets you analyze internal profit and loss for profit centers. This makes it possible for you to evaluate different areas or units within your company. You can structure profit centers according to region (branch offices, plants), function (production, sales), or product (product ranges, divisions). Profit Center Accounting is a component of the module Enterprise Controlling. EC-PCA can be used by companies in any branch of industry (mechanical engineering, chemical, service industries and so on) and with any form of production (repetitive manufacturing, make-to-order manufacturing, process manufacturing). The profit-relevant data is displayed by period. For more information, see Profit Center Accounting.

Period accounting method Vs COST OF SALES ACCOUNTING The Profit and loss statement of a Company can be prepared by following two different procedures : (1) Cost of Sales accounting and (2) period accounting method. By applying either of the methods to a given set of business transactions under a given set of laws yields the same bottom line ( profit/loss ). Period Accounting Method: In Period accounting method, the profit and loss statement is structured according the individual revenue and expense types. Due to this structure, it becomes apparent which production factors caused expenses. Period accounting compares these expenses incurred in an accounting period with the total result for this period which have

not yet been sold ( increase in stock ) and adds them to the sales revenue. In addition, it also deducts goods produced in the previous accounting periods that have been sold in the current accounting period from the sales revenue. Together with other operating revenues, the total of these items represent the total result of the accounting period. COST OF SALES ACCOUNTING: In contrast to period accounting, cost of sales accounting does not differentiate between various types of expenses. With this method, the emphasis is on matching the revenues for goods and/or services provided ( the value that a Company gains as a result of sales ) against the related expenses for those items ( the value that is lost when products are transferred out of the company ). It compares the Sales revenues with expenses incurred by the goods produced without other revenues or expenses being added or deducted. Operating expenses that cannot be directly attributed to sales are allocated to function areas such as Sales and distribution, administration etc. Due to the function structure consisting of production, sales and distribution, administration, Cost of sales accounting shows the different items in the Company for which costs incurred. This accounting method displays profit and loss information in a manner optimized for conducting margin analysis, and as such it is optimal for the Sales, marketing and product management areas. Typical Profit and loss statement derived from Period accounting and Function areas : The Operating result remains the same in Period Accounting and Cost of Sales Accounting. USE OF FUNCTIONAL AREAS FOR REPORTING : Function areas classify operating expenses according to the requirements of Cost of Sales accounting by production, administration, sales and distribution, marketing, research and development etc. Some examples of how you can use substitution or a user exit to identify the functional area : Cost centers : via the Cost center type and/or combination of

cost center and cost element. WBS element : via the Project type profile. Profitability Orders : via the Order type.

segment : function area Sales. G/L account.

Functional areas can also be derived based on specific relative position values in the G/L account and cost center/internal order. If CO assessments/distribution causes costs to be allocated across functional areas, then the reconciliation ledger must pass the inter-functional area transaction to FI. Functional areas can also be entered manually. The manual entry has priority over the substitution rules defined for deriving functional areas. The following tables can be utilized for defining the substitution rules for Functional areas : ACCHD fields = FI document header. ACCIT fields = FI document item. AUFKV fields = order infos eg order type ( AUFKV-AUART ) CSKSV fields = cost center info, eg cost center type ( CSKV-KOSAR ) In addition to inter-company activity and inter business area activity, inter functional area activity must be posted back to the FI module from CO in order to meet external reporting requirements. In addition to the FI General Ledger, there is the option of keeping a further ledger ( Cost of Sales accounting ledger 0F ). In this Ledger, you can update all FI relevant business transactions. In contrast to the General Ledger, the transaction figures are additionally administered according to function areas. The Ledger is based on the table GLFUNCT.

When FI relevant account assignments such as company code and business areas are changed, the reconciliation ledger principally logs clearing postings within CO. It also shows variance of function area balances between FI and CO that occurred due to internal changes. It is therefore recommended that the reconciliation ledger should also be configured and activated. SOME BASIC STEPS FOR SETTING UP COST OF SALES ACCOUNTING : 1. Maintain functional areas through Financial Accounting

configuration. 2. areas. 3. rule. 4. Activate the Special purpose ledger if it was not activated earlier. ( Activate the Function area derivation Define the derivation rules for Functional

Global or local ledger ) 5. Activate the Reconciliation ledger.

When a CO internal clearing leads to a change of function area, this results in a shifting between the concerned P & L items. This is why this transaction has to be transferred back to FI in the form of a correction posting ( reconciliation ledger ). The definition of substitution rules for secondary cost elements provides the basis for adjustment postings that are generated later. 6. Allocate your Company code to the Ledger. Define the activity

groups. 7. Define the field movements that will populate your

ledger. 8. Set up reporting requirements.

REPORTING PROFIT AND LOSS STATEMENT ACCORDING TO COST OF SALES ACCOUNTING : The Profit and loss statement based on Cost of sales accounting is generated from the new Cost of sales accounting ledger ( ledger 0F ). SAP delivers a sample report as a model for your own reports : To look at the report ; Accounting > Financial Accounting > Special Purpose Ledger > Tools > Report Painter > Report writer > Report group > Display. Enter report group 0F01, enter the following : Ledger : 0F Fiscal Year Period from Period To Company code : As relevant. : As : 12 : 01 : 2005

Plan version

relevant To drill down a particular line item, place cursor on the amount field and go to Edit > Select block. A message will appear Cell is marked. The blocked that is marked is displayed in a different color. Click the button Call up report. ( first button from the right hand side ). A selection screen will pop up displaying options such as Actual like items for table GLFUNCT, Plan lime items for table GLFUNCT and Period breakdown. The Functional area is kept in the Cost of Sales accounting Ledger and in the total tables of the reconciliation ledger and in Profit Center accounting. The standard system contains two sample forms for Cost of Sales accounting : 0SAPBLNCE -01 Balance using C/S (

German Trade Law ) 0SAPPRALO01 Profit and loss

w/C/S ( German Trade Law ) These forms are based on the financial statement version INT ( Chart of accounts international ) and display actual data. The columns show a comparison of the current fiscal year and past fiscal year, along with a variance between the two years. You can copy these forms to create your own forms. Give your own reports a name that lies within the naming range for customer defined reports. As with the forms, there are also two standard reports for Cost of Sales accounting with exactly the same naming convention. You can copy these sample reports to create your own reports. Again, give your reports a name that lies within the naming range for customer defined

reports. SOME DRAWBACKS OF USING COST OF SALES ACCOUNTING APPROACH : It is worth noting that Profit center accounting transfers data according to the principle of Period accounting. The pre-defined standard reports in Profit center accounting in PCA information system are based on a division according to the Period accounting approach. SAP delivers no standard reports using the Cost of Sales by using the function area. Since you can define these functional areas and the rules by which they are used, you need to define your own reports if you want to use the Cost of Sales approach. ( you can use the standard system delivered forms and reports to get your desired reporting requirements ). You can only use the Cost of Sales approach in Profit center accounting if it is also active in Financial accounting. The System performance may get affected because of addition of an extra Ledger 0F depending on the volume of data handled in the system.