Explaining the Concept of Cost of Sales Reporting

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Cost of sales accounting compares the production costs of sales for a specific accounting period. The expenses are allocated to the commercial functional areas in SAP, which include production, sales and distribution, administration, and more. Expenses and revenues that cannot be assigned to functional areas are reported in other profit and loss items, which are sorted or grouped according to expense and revenue type.

With this type of grouping, cost of sales accounting identifies where costs originate in a company. It identifies the economic reason for a particular expense.

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The profit and loss statement can be created using two types of accounting:

●Period accounting

●Cost of sales accounting

The operating result is the same regardless of the type of accounting used. The type of accounting to be used:

●Is stipulated by legal requirements, or,

●Can be chosen by the company, where legal alternatives are offered. In this case, the company considers business criteria (such as international comparability) when deciding which type of accounting to use

Period Accounting

In period accounting, the total output of a period and the total costs of this period are summarized:

●The total output of a period is the sales revenue minus a reduction in the inventory level or plus an increase in the inventory level.

●The total costs of the period are grouped by expense type, in other words, just the balances of similar expense accounts (such as different accounts for personnel expense) can be summarized. This grouping shows how the costs are distributed to the various production factors.

Cost of Sales Accounting

In cost of sales accounting, the sales revenue for a period and the sales costs of the period are summarized:

●The sales revenue for the period is determined in the same way as in period accounting. Balance sheet changes are not considered.

●The sales costs of the period represent the expenses related to the sales. The expenses are not grouped by expense type as in period accounting. Instead, they are grouped by function (such as production, sales, administration, research and development).

The cost of goods manufactured is determined when the goods are issued.

To assign the remaining costs to their origin, the SAP system requires an additional characteristic: the Functional Area. Typical functional areas are sales and distribution, production, marketing, administration, research and development

The Functional Area characteristic can be derived from master data, such as a cost center or a WBS element. This item is defaulted in the Account Assignment when as used in a journal entry and then posted into the universal journal.

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Let’s generate a cost of sales report. You create a financial statement version in Manage Global Hierarchies that uses functional areas to display the data groups.

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