Describing the architecture of management accounting


After completing this lesson, you will be able to Explain how management accounting works in SAP S/4HANA.

Corporate business processes and accounting

Management accounting in SAP S/4HANA is the support system for management in its decision-making, be it in terms of planning, monitoring, or reporting of the business processes. Subsequently, it assists in the coordination, monitoring, and optimization of the business processes of the organization.

You want to understand the structure and subdivision of controlling in components and how these then represent the production and sales processes of the Bike Company. You are particularly interested in the relation and interoperability of the components with each other. You wonder which transact triggers management accounting in SAP S/4HANA. Where is the interaction between the process organization in the company and the role of Controlling?

In this lesson, you will become familiar with the individual controlling-relevant work areas and their relationships.

The relationship between processes in the company and accounting

The legal structure of an enterprise is fairly rigid, represented by the companies and operating segments. The management structure allows you more flexibility and you can structure according to:

  • Functional aspects: production (plants), sales (sales offices), purchasing, marketing, accounting, controlling
  • Product-related aspects: business areas, business units, divisions
  • Regional aspects: countries, territories

The tasks of accounting are divided in two parts according to the stakeholder requirements: financial accounting (shareholders, customers, suppliers, lender, public) and management accounting (management, employees). The management accounting tasks are:

  • Documentation of internal business transactions
  • Management support
  • Controlling operational efficiency
  • Making decisions
  • Execution of business transactions, for example, planning

The driver model

To be able to fulfill the task of decision support, a system of functional dependencies is created. This enables you to map the cause-effect business relationships in the system. The logistical business transactions and other business events in the real world are the drivers. The dependent sizes are usually monetary values. The connection between the drivers and the values is determined by coefficients consisting of technical standards, legal agreements, operational general conditions, empirical values, operational planning, and so on.

Single circuit system

From a business point of view, SAP S/4HANA accounting & controlling follows the so-called single-circuit system. The values are maintained using the general ledger accounts. The values are differentiated by account assignments: cost centers for controlling areas of responsibility, cost objects for determining the cost of goods manufactured, and profitability segments for revenue and profitability analysis. The account assignments can be fixed (cost center and cost object) or flexible, such as profitability segments that combine characteristics, such as product, region, distribution channel, and so on. The account assignment can be entered when the business transaction is entered (for example, cost center for the purchase order or invoice receipt) or from assignments in master data (for example, an employee associated with a cost center, a product corresponds to a cost object). All allocations required for management accounting are treated as financial accounting documents.

To perform the management accounting tasks using the driver model, you can categorize costs/revenues differently from expenses and revenues in the profit and loss statement as well as cost and revenue elements in contrast to expense types/revenue types. The overhead costs are assigned to areas of responsibility; these are mapped to cost centers and projects. In product costing, the costs per unit for products and services are calculated; these are represented by cost objects. The overhead costs are determined by transfer pricing in accordance with the routing and are allocated to the cost objects. The costs of raw and semi-finished products are transferred to the cost objects according to the bill of material (BOM) in production. The revenue and contribution margin are differentiated by market segment, referred to as profitability segments. All of this is done on the basis of the actual business transactions (actual data) and planning-related (plan data).

Controlling components

An overview with a short definition

In the following figure, you will find a short explanation of the application areas in SAP S/4HANA management accounting:

Management accounting application areas in SAP S/4HANA

The modules of SAP S/4HANA management accounting - one level deeper

  • In Cost Element Accounting, the costs are separated according to functional criteria (material costs, personnel costs, depreciation costs, and so on) and managed on cost element masters intended for this purpose. The overhead costs are assigned to the overhead cost objects, which initially carry the costs as a representative of the company's products (cost objects). As instances responsible for causing the overhead costs, cost centers are created and debited with the overhead costs. Overhead costs are costs that are not unique to a specific product. Cross-cost center costs can be managed on projects (WBS-elements) and then settled to other cost objects (cost centers, projects) or directly to the enterprise result.
  • The aim of Overhead Cost Controlling is the planning and actual calculation of overhead costs, a detailed variance analysis of planned and incurred costs, and the transfer to the cost objects according to cause. The allocation of cost center costs using the required activity quantities of the receiver cost centers meets the requirements for the transfer of costs according to cause. This also applies to the direct settlement of projects to cost objects. If direct allocation is not possible, the transfer takes place using overhead rates.
  • In Product Cost Controlling, cost accounting is used to track the value-added processes of the company. The product cost estimate calculates the cost of goods manufactured (COGM) and the cost of goods sold (COGS) of the products. The materials required for the products are documented in bills of material, and the cost center activities required for production are documented in routings. The required quantity of preliminary products (material quantities) is multiplied by the material prices, the required activity quantities (for example, required working time) are multiplied by the cost center prices, supplemented by overhead rates, and, if necessary, process costs lead to the product costs. The aim of product costing is to calculate realistic product costs as the basis for cost-oriented sales order costing and the valuation of inventories of semi-finished and finished products for the balance sheet approach.
  • In Cost Object Controlling, planning and actual cost accounting is performed for cost objects that are usually orders or projects. The goal is to calculate and analyze cost variances. On the basis of this, corrective measures are taken, and the valuated stocks of intermediate products are displayed by period. The final setting of prices is then market oriented.
  • In Profitability Analysis, the company results are calculated and analyzed according to both account-based and costing-based business criteria, that is, taking into account commercial and tax-based valuation policies and options (account-based profitability analysis) and purely sales and distribution accounting criteria. While the company's year-end closing has to be created from a commercial and tax perspective, the calculation of internal operating profit can also be based on cost-accounting valuations. For this purpose, accounting expenses are calculated as costs with a different valuation approach, for example, imputed depreciation, imputed interest, or planned prices or sales order cost estimates when calculating the cost of goods sold. In international profitability controlling, group cost estimates in which intercompany profits are eliminated when goods are delivered within a corporate group are taken into account in a separate valuation.
  • Profit Center Accounting summarizes the results on profit centers. A profit center is a business organizational unit in the company and as such is responsible for profits. In addition to revenues and costs, balance sheet accounts are also posted to profit centers. By allocating the fixed capital in conjunction with the profit, you can calculate return of investment (ROI) key figures. This means that a profit center can also be positioned as an investment center in the company.


    As a best practice, all journal entries in SAP S/4HANA reference a profit center. Many times this is strictly enforced through system controls.

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