Dividing an Enterprise into Areas of Responsibilities Using Profit Centers

A Profit Center is an organizational unit in accounting that reflects a management-oriented structure of the organization for the purpose of internal control.

In General Ledger Accounting, you can perform internal management reporting in parallel with legal reporting. For this purpose, you use the dimension Profit Center.

Profit Centers divide an enterprise into areas of responsibility for profits. Profit centers essentially become companies within the company. Profit centers can be assigned to balance sheet transactions as well as to transactions affecting the profit and loss, so you can create an internal balance sheet and P&L statement on the level of a Profit Center or Profit Center Group (a hierarchical structure of profit centers).

A Profit Center Group is a hierarchical structure of profit centers. You can use profit center groups to group profit centers together according to company-specific criteria. Profit center groups are used for reporting, allocations or in various planning functions, where it is not desirable to enter or display data at the lowest level (with a high level of detail).

You can set up profit centers based on:

• A geographical structure (for example regions)

• A product-related structure (for example product lines)

• A functional structure of profit centers (for example production, sales, and research)

The profit center structure for the Bike Company is product-related. There are different profit centers for products A and B (YB110, YB11) and the consulting services for them (YB101, YB102). Using profit center groups the management structure is reflected: profit center group YBH111 for Product and profit center group YBH110 for Services and consulting. Profit center group YBPH is the top level of these underlying profit center groups.

This offers the possibility to produce financial statements according to internal areas of responsibility, for example a balance sheet and P & L statement for Spare Parts A.