Definition and Use of Segment
Definition of Segment
A Segment is a division of a company for which financial statements for external reporting can be created.
Use of Segment
Segment reporting provides insight into different business activities of a diversified company. According to international accounting principles (IFRS 8 and ASC 280 in US-GAAP), companies are obliged to provide information in their reports on the financial results of business segments (operating segments).
You use segment reporting to portray the items in the financial statements by segment. The detailed results are then presented by segment. Annual financial statements supplemented by the segment information from segment reporting provide deeper insights into the financial position, asset position, and profit situation of a company.
In SAP S/4HANA financial statements can be produced on the Company Code level, which represents legal units. Financial statements based on segments can group business activities across Company Codes.
Example of Segment
Bike Company
In Bike Company, both Company Codes (the legal units in Germany and US) offer the following business activities which are required for segment reporting:
- Bikes
- Spare Parts
- Services
So, beside financial statements for the German and U.S. Company, additional financial statements can be produced which groups the activities from those companies, for example a balance sheet and P & L statement for Bikes.