Profit Center Accounting – Cost and Revenue Flow

Profit center accounting, in conjunction with transfer pricing, enables

  • Structuring of the A Group according to Strategic Business Units(SBUs), leading to: Full Income Statements according to lines of business (Product Groups rolled up to SBU/Sectors)
  • Selected reporting of Balance Sheet items by Product Group/SBU and Sector (e.g. Payables/Receivables, Fixed Assets. Inventories).
  • The ability to reflect material movements between SBUs at commercial prices rather than cost

The profit center is stored in the cost center this way the costs flow to the profit center. The profit center is also stored in material master. This way all sales orders created for the finished product automatically picks up the profit center from the material master and all the revenues and costs coming from this sales order for that finished product is passed on to this profit center.

A profit center document is created in addition to the Finance document whenever revenue or consumption takes place.  Once both the costs and revenues flow to the profit center you can write reports using the Report Painter to get intelligent analysis. You can also use SAP standard reports

What is the Purpose of Creating a Profit Center?

The basic purpose of creating a Profit Center is to analyze the revenues and costs for a particular product line, or a plant or a business unit. Though you can generate balance sheets and profit and loss accounts per Profit Center still a profit center should basically be used as a tool only for internal reporting purposes. If legally one has to produce the Balance sheets and Profit and Loss Accounts for a profit center then it is advisable to create it as a company code instead of a profit center

 

 

Valuation Views

You use valuation views to represent different ways of viewing business transactions in a company.
  • Legal view (Individual enterprise) – For transactions between company codes.
  • Group view – For a consolidated view of the corporation.
  • Profit center view – For business transactions between profit centers

Profit Center

Organizational unit in Accounting that reflects a management-oriented structure of the organization for the purpose of internal control. Profit Center groups are collections of Profit centers with similar characteristics.

Profit Center Group

Profit center group can be created using KCH1, changed with KCH2 and displayed with KCH3.

A profit center group is a hierarchical structure of profit centers. We can use profit center groups to group profit centers together according to company-specific criteria. Use Profit center groups are used for reporting, allocations or in various planning functions, where it does not make sense to enter or display data at the lowest level (with a high level of detail). The standard hierarchy is a special type of profit center group. It has to contain all profit centers belonging to the controlling area and reflect the organizational structure of Profit Center Accounting. We can collect cost centers according to various criteria into groups. This enables us to use cost centers to depict the structure of the organization in the SAP System.

The Quick reference on Profit Center Group will provide you all the steps in:

  • Create Profit Center Group – KCH1
  • Change Profit Center Group – KCH2
  • Display Profit Center Group – KCH3

Download the quick reference on Profit Center Group

Create Profit Center Group

Change Profit Center & Display

Determination of Profit Center for Balance Sheet

Receivables are divided according to the corresponding revenue line items and assigned to the profit centers. Payables are posted to the profit center of the material ordered for purchases orders to stock, and to that of the account assignment for purchase orders to account assignment objects. The assignment of material stocks and assets based on the assignment made in the master record of material. Because postings for down payments do not reference an invoice, itis not possible to automatically assign the down payment to profit centers. However, you can assign them manually.

Difference between Cost Center and Profit Center

Cost Center

An organizational unit within a controlling area that represents a defined location of cost incurrence. The requirement at Greaves is to capture the costs Department wise. Cost centers would be divided into main groupings:

  1. Production
  2. Service
  3. Administration Cost Centers
  4. Selling & Distribution Cost Centers

Profit center

Profit Centre can be created using KE51, changed with  KE52 and displayed with KE53.
A profit center is an organizational unit in accounting that reflects a management-oriented structure of the organization for the purpose of internal control. We can analyze operating results for profit centers using either the cost-of-sales or the period accounting approach. By calculating the fixed capital as well, we can use our profit centers as investment centers.

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