The profit and loss statement can be created using two types of accounting:
Period accounting
Cost of sales accounting
The operating result is the same regardless of the type of accounting used. The type of accounting to be used:
Is stipulated by legal requirements, or,
Can be chosen by the company, where legal alternatives are offered. In this case, the company considers business criteria (such as international comparability) when deciding which type of accounting to use
Period Accounting
In period accounting, the total output of a period and the total costs of this period are summarized:
The total output of a period is the sales revenue minus a reduction in the inventory level or plus an increase in the inventory level.
The total costs of the period are grouped by expense type, in other words, just the balances of similar expense accounts (such as different accounts for personnel expense) can be summarized. This grouping shows how the costs are distributed to the various production factors.
Cost of Sales Accounting
In cost of sales accounting, the sales revenue for a period and the sales costs of the period are summarized:
The sales revenue for the period is determined in the same way as in period accounting. Balance sheet changes are not considered.
The sales costs of the period represent the expenses related to the sales. The expenses are not grouped by expense type as in period accounting. Instead, they are grouped by function (such as production, sales, administration, research and development).
The cost of goods manufactured is determined when the goods are issued.
To assign the remaining costs to their origin, the SAP system requires an additional characteristic: the Functional Area. Typical functional areas are sales and distribution, production, marketing, administration, research and development.
Cost of Sales Accounting Functional Areas
Cost of sales accounting requires the use of organizational units called functional areas to divide costs posted to the same expense account to separate report items. As illustrated above, this allows you to present the same type of expense in different sections of your report (such as personnel expenses associated with production are included in Gross results while personnel costs incurred for other purposes would be included in the Total overhead expenses section).
By grouping expenses by function (production, sales, administration), cost of sales accounting also defines the business transaction that each individual expense in the company results from.
Deriving Functional Areas
Cost of sales accounting is part of the Universal Journal (ACDOCA). The functional area is filled by:
Manual entries.
Automatically entering the functional area using substitution rules.
Automatically copying a functional area entered from the master record of the P&L account.
Automatically copying a functional area entered from the master record of the CO object.
The preceding sequence also indicates the priority of the derivation options. Manual entries have the highest priority. The system should be set, however, so that a manual entry is not normally required and the functional area is derived from the assigned CO object, the P&L account, or using substitution rules.