Explaining Profit Centers

Profit Center Accounting (PCA) in SAP S/4HANA Financials is a tool to evaluate specific areas or units in your organization. Structure profit centers by region (such as branches or plants), function (such as production or sales), or product (such as product groups or divisions) to analyze internal profit and loss for profit centers.

Typical questions in Profit Center Accounting are for example:

• Contribution of an organizational unit: What is the operating profit of a profit center?
• Return on investment: Which fixed asset value is assigned to a profit center?
• Cost management: Which areas of responsibility exceeded their plan during the last month?
• Management of internal sales and activities: Which goods and services were provided or sold in the enterprise?

The online document splitting function in financial accounting provides a balance sheet reporting on profit center level. To meet legal segment accounting requirements (based on International Financial Reporting Standards (IFRS) or United States (US) Generally Accepted Accounting Principles (GAAP), for example), assign the segment accounting object to profit centers in SAP S/4HANA.

According to most recent theories, you can show the results of profit centers as profit and loss statements and balance sheets in the Financial Accounting.

A profit center is a management-oriented organizational unit used for internal control purposes. Dividing your organization into profit centers enables you to analyze the areas of responsibility and assign responsibility to each profit center. Profit centers essentially become companies within the company.

A profit center is defined at CO area level. When creating a profit center, you enter the name of the profit center, and the period of validity. Profit center master data is time dependent, which means that you can create different data for different periods. The Standard Hierarchy Node field defines the assignment to a node in the profit center standard hierarchy. You can copy master data information from an existing profit center.

Profit centers are unique in that they can be assigned to balance sheet transactions as well as to transactions affecting the profit and loss.

Data Flow to Profit Center Accounting in SAP S/4HANA

Before you can analyze your profits by profit center, the system must summarize all the profit-related postings in PCA.

Data is transferred to Profit Center Accounting in SAP S/4HANA as follows:

• All posing in Financial Accounting could be assigned to a profit center with or without a controlling object.
• Posting cost and revenue in Financial Accounting with accounting to a controlling object such as cost center, internal order, or WBS (Work Breakdown Structure) element (project) that is assigned to a Profit Center leads to an assignment of the posted value to a profit center.

• Posting in Management Accounting leads to an assignment to the corresponding profit center of the cost objects.