SAP Profit Center Accounting

The essential difference between a profit center and a business area is that profit centers are used for internal control, while business areas are more geared toward an external viewpoint.

The profit center differs from a cost center in that cost centers merely represent the units in which capacity costs arise, whereas the person in charge of the profit center is responsible for its balance of costs and revenues.

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The main aim of Profit Center Accounting is to determine profit for internal areas of responsibility. It lets you determine profits and losses using either period accounting or the cost-of-sales approach.

By assigning balance sheet items (asset portfolio, payables and receivables, material stocks, work in process) to profit centers, you can analyze your fixed assets by profit center, thus using them as investment centers. This makes it possible to expand profit centers to investment centers. This also makes it possible for you to analyze a number of key figures by profit center, including return on investment, working capital and cash flow.

EC‑PCA lets you set up your profit centers according to product (product lines, divisions), geographical factors (regions, offices or production sites) or function (production, sales). You need to make the settings in Basic Functions in order to divide the company into internal areas of responsibility. You divide you business into profit centers by assigning the profit centers to the various master data that is relevant for profits (materials, cost centers, orders, projects, sales orders, assets, cost objects and profitability segments). This lets you set up Profit Center Accounting in a way that meets your company’s requirements regardless of what sector of industry your company is in (machinery, chemicals, services, and so on) or what form of manufacturing you employ (repetitive manufacturing, make‑to‑order production, continuous flow production).

Every profit center is assigned to the organizational unit Controlling area. The profit centers in a company code belong to a standard profit center hierarchy that is also assigned to the controlling area.

All profit‑relevant business transactions are updated in the profit center hierarchy according to G/L account at the same time they are processed in the original module of the SAP system. This ensures that the entire flow of goods and services within a company is transformed in goods and services relationships between profit centers. This is true both with actual postings and in planning.

You can also transfer the balances and balance changes of certain balance sheet accounts to profit centers in realtime or periodically.

Goods movements between profit centers can be valuated either at external prices, group‑internal prices or specially defined transfer prices. For more information, see Parallel Valuation Approaches/Transfer Prices.

The Information System provides a user‑friendly tool for evaluating your plan and actual data. Because results are stored by G/L account, you can reconcile the data with data in Financial Accounting at the cost element level. The reports contained in the standard R/3 System represent a simple information system for analyzing areas of responsibility. In addition, different tools are available which let you create your own reports to further meet the needs of your company.

The Distinction Between Profit Center Accounting and Profitability Analysis (CO‑PA)
Profitability Analysis (CO‑PA), like Profit Center Accounting, is another form of profitability accounting. However, it is incorporated in operative cost accounting. That means that the profitability segments in CO‑PA are accounting assignment objects and are thus directly integrated in the flow of data in cost accounting.

In contrast to EC-PCA, where profits are found for areas of responsibility within the company, CO-PA lets you analyze the profitability of different segments of your operative business -- defined according to products, customers, orders, or any combinations or groups of these -- or organizational units, such as company codes or business areas. The aim of CO-PA is to provide the accounting department and decision-makers in sales, marketing, product management and corporate planning with information about the market.

You can define the master data and basic structures in CO‑PA flexibly to meet your company’s specific requirements. By choosing just the objects for evaluation (characteristics) and key figures you require, you can create a company‑specific multidimensional structure for analysis.

Unlike EC‑PCA, CO‑PA lets you use an account‑based or a costing‑based approach. In the costing‑based approach, you can define your own value fields for analysis. In account‑based CO‑PA, the values are represented in accounts.

EC‑PCA and CO‑PA should not be regarded as alternative components. On the contrary, they complement one another and jointly provide you with a flexible and comprehensive profitability accounting tool, allowing you both a market‑oriented viewpoint as well as a responsibility‑ and person‑oriented one.

For more details about CO‑PA and how it differs from EC‑PCA, see the R/3 Library, underCO-PA Profitability Analysis.

The Distinction Between Profit Center Accounting and Special Purpose Ledgers (FI‑SL)
The component Special Purpose Ledgers (FI‑SL) is primarily used to perform company‑specific accounting‑tasks which cannot be performed using the SAP standard functionality. This component contains no predefined business functionality. Rather, it makes available a number of abstract tools, which are already used in various standard applications.

For example, Profit Center Accounting is based largely on the technology in FI-SL. You may wish to use the special purpose ledgers to supplement Profit Center Accounting if your requirements cannot be entirely met there. However, this would require a significant amount of programming and additional maintenance.

Consolidation (EC‑CS)
Consolidation (currently in development) gives you a reconciled view of your group’s financial data and lets you create the reports required by corporate law (by group, company or business area) as well as reports which reflect your company’s internal management structure (by profit center or region). This is possible due to powerful consolidation functions built on top of flexible structures. You can use corresponding interfaces to transfer data from General Ledger Accounting (FI-GL), Asset Accounting (FI-AA), Material Management (MM), Sales and Distribution (SD) and Profit Center Accounting. You can also analyze the results of the consolidation immediately in EC‑EIS.