Explaining Other Organizational Elements in Financial Accounting


After completing this lesson, you will be able to:

  • Explain other organizational elements in financial accounting

Organizational Elements in Financial Accounting

Organizational Elements in Financial Accounting

Before we can post any financial transactions in SAP S/4HANA we have to define the organization structure for Financial Accounting (FI). The most important organizational element in FI is the Company Code. It is the smallest organizational unit of FI for which a complete self-contained set of accounts can be drawn up for the purposes of external reporting. Other important organizational elements are the Profit Center, Segment and the Functional Area. You can create a fully-balanced set of financial statements for each Profit Center and Segment. The use of the Functional Area allows one to report by Cost-of-Sales Accounting (COS).

Company CodeSmallest organizational unit of external accounting for which a complete, self-contained set of G/L accounts can be createdExternal financial statement for legal entity
  • Legal entity in Germany
  • Legal entity in USA
Profit CenterAn organizational unit in accounting that reflects a management-oriented structure of the organization for the purpose of internal controlInternal financial statement based on a management-oriented structure of the organization
  • Product
  • Services
SegmentA division of a company for which financial statements for external reporting can be createdExternal financial statement based on segment reporting (IFRS)
  • Bikes
  • Spare Parts
Functional AreaAn account assignment characteristic that sorts operating expenses according to their functionExternal financial statement based on cost-of-sales accounting
  • Production
  • Marketing

Your reporting requirements will determine whether you need to define the additional dimensions mentioned above. The Profit Centers are freely definable and represent an area of responsibility, such as a business unit or geographical location. They are usually used for internal reporting purposes and enables one to report for example a balance sheet by Profit Center, or groups of Profit Centers.

Segments are used for external reporting purposes where the organization needs to comply with IAS8. Companies are obliged to provide information in their reports on the financial results of business segments (operating segments). To achieve accurate segment reporting in SAP S/4HANA, the segment is maintained on the line items of accounting documents at the time of posting. The segment to be posted is generally derived from the profit center and not entered manually.

Functional Areas break down corporate expenditure into different functions, in line with the requirements of cost of sales (COS) accounting. These functions are:

  • Production

  • Administration

  • Sales and Distribution

  • Marketing

  • Research and Development

Thus one can report a financial statement by Functional Area as opposed to the natural General Ledger account providing a COS view.


In this journey it all started off with a posting problem that lead Kevin to identifying and solve the issue. Kevin was able to gain an insight into the finance organizational structure and G/L Account master data maintenance. Did you? Choose PLAY to discover and finally do the assessment!

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