Defining the Organization Levels in SAP Financials

Objectives

After completing this lesson, you will be able to:

  • Explain the Organizational Levels in SAP Financials

Organizational Levels in SAP S/HANA Financials

Controlling Area

A controlling area represents a separate unit of Cost Accounting. The controlling area identifies a self-contained organizational structure for which costs and revenues can be managed and allocated.

By assigning more than one company code to a CO area, you can perform cost accounting for all company codes. You can allocate values in Management Accounting that affect more than one company code.

A CO area and its company codes must use the same operating chart of accounts and the same fiscal year variant. However, you can link these accounts to country-specific accounts by using an alternative account number (based on a Country Chart of Accounts) that is stored in the master data record for accounts.

In cross-company-code cost accounting, a CO area and its company codes can have different currencies. The currency of a CO area can be same as that of a company code.

Operating Concern

The Operating Concern represents the structure of external market segments for the enterprise. You can assign several controlling areas to each operating concern so you can analyze them together. You can use Profitability Analysis (CO-PA) within the Operating Concern.

Company Code

The characteristics of a company code are as follows:

  • A company code does not usually extend national boundaries. You can create a company code according to tax law, commercial law, and other FI criteria. Company codes are usually created based on geographical considerations.

  • A company code is the smallest SAP entity that supports a full legal set of books.

  • There must be at least one company code in the production environment for a business to be live.

  • A company code key is a four-character alphanumeric field.

Segment

International Accounting Standards (IAS) distinguishes between business and geographical segments as follows:

  • A segment is an organizational unit. In General Ledger Accounting, segments are used as a dimension for reporting purposes.

  • A business segment represents a sub-activity of a company that involves the manufacture of a product or provision of a service, with risks and revenues that differ from those of other business segments.

  • A geographical segment provides information about risks and revenues that differ from other geographical segments in terms of economic or political factors.

According to the United States Generally Accepted Accounting Principles (US GAAP), a segment is a part of the company that incurs costs, generates revenue, and has its own financial data with respect to profit and resource consumption.

The aims of segment reporting are as follows:

  • To provide an insight into different business activities of a diversified company

  • To provide information about the general environment

The purposes of segment reporting are as follows:

  • To provide a clear review of a company’s economic performance

  • To improve forecasting of the potential sales and financial reserves of a company

  • To anticipate risks and opportunities of a company

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