Describing the Architecture of Management Accounting


After completing this lesson, you will be able to Recall the components of management accounting.

Management Accounting Components

Lesson Overview

In this lesson, we will introduce the areas of Management Accounting supported by SAP S/4HANA. You will then be able to explain the importance of using various cost assignment objects to collect overhead costs in multiple valuations.

In your company, your costs need to be monitored regularly and efficiently. You need to track costs that you can directly assign to products or services (such as raw materials used in production or the time employees spent in production) but also costs that are for running the processes that support business operations, such as the finance department. These are overhead costs. Your company's cost matrix tends to include increasing amounts of overhead costs either in the service or the product business. You need to be able to analyze these costs in detail and accurately.

Overhead Cost Controlling in SAP S/4HANA provides you with such structures and cost objects to help you to plan, track, assign, allocate, and analyze these costs.

Areas of Management Accounting

This topic provides you with an overview of what management accounting (controlling) in SAP S/4HANA is about and which areas it consists of. Each process matches the corresponding controlling tasks in the system.

Controlling processes costs and revenues that come from different SAP modules, such as Financial Accounting, Human Capital Management, or Sales.

The costs and revenues generated are collected in controlling. What does the processing of this data look like?

The following interactivity provides you with a quick overview of the different parts in controlling. You will see how each part of controlling contributes to further processing of costs and revenues.

First, you will get to know the role of Overhead Cost Controlling, then you will see how product-related data is processed in Product Cost Controlling. Finally, you will have a quick glance at analyzing the result using Profitability Analysis and Profit Center Accounting:

By summarizing the data flow, you see that the end-goal of allocations in controlling is that all costs and revenues posted finally end up in Profitability Analysis.

The following image provides another look at the various parts of controlling.

Organizational Units

Now that you know the areas of management accounting and the goals they have, let's look at the organizational unit concept of SAP S/4HANA.

Organizational units are system representations of the functional units of the company. Depending on how tasks are distributed in the company, these can be, for example, departments or project teams. When you set up the organizational units and their hierarchical links, you create an organizational model of your company, that is, how the organizational units fit together.

Organizational units for controlling guarantee a common context for accounting and reporting with elements applied to all company codes assigned to them:

  • A common fiscal year variant.
  • A common chart of accounts.


The chart of accounts is a structure that collects all the G/L accounts used by the company codes in the enterprise. The fiscal year variant defines the number of financial periods in the fiscal year + the number of special financial closing periods for year-end closing postings.

The controlling area and operating concern are the organizational units for management accounting. The controlling area is needed for overhead cost controlling, profit center accounting and product cost controlling. The operating concern is dedicated to profitability analysis.


Though there is a theoretical hierarchy for the organizational units, in SAP S/4HANA Cloud, public edition, there is always a single controlling area assigned to a single operating concern. This is the best practice for SAP S/4HANA Cloud, private edition as well, but there is flexibility to create more according to specific business requirements or legacy configuration.

In this learning journey, we are focusing on the area of overhead cost controlling.

Cost and Revenue Assignment and Data Flow

In SAP S/4HANA, any financial transaction that concerns operating expenses or revenues is entered through a journal entry that posts to primary cost or revenue accounts. For each cost or revenue line item, you must define the relevant controlling account assignment:

  • The G/L account defines what is the expense or revenue and

  • The account assignment defines what is the purpose of the expense or revenue.

Expense and revenue postings can come from a range of sources such as financial records, supplier and customer invoices, and so on.

For example: To specify which department or project you ordered marketing brochures from your supplier for, you enter the supplier invoice and attribute the expense to the cost center or the project for which the order was made.

Which objects?

Here is a list of objects that can be used as a cost assignment object, either controlling native (internal) or other source (external):

  • Cost center
  • Work breakdown structure (WBS) element
  • Profitability segment
  • Sales order
  • Production order
  • Internal order (SAP S/4HANA Cloud, private edition only)
  • Process (SAP S/4HANA Cloud, private edition only)


In this learning journey, we will focus on cost centers and WBS elements.

As you already know, overhead cost controlling is responsible for the collection and processing of costs that can’t be assigned directly to a product or a service. Let’s have a closer look at how overhead costs are processed:

As mentioned, all overhead costs are allocated monthly to different objects such as cost centers, WBS elements, and business processes. This step is important to understand what drives the costs incurred and to charge them accordingly.

Parallel Valuation with Ledgers

Each country in which a business runs has its own regulations for valuating accounting transactions in your financial records. These are called accounting principles. Parallel valuation in SAP S/4HANA supports you in fulfilling legal financial reporting requirements for your country, but also for group valuation requirements, using parallel ledgers. Financial figures are stored in separate ledgers valuated according to the accounting principles you need to report.

Parallel valuation allows valuating financial data in separate accounting principles across the complete value flow. For this, SAP S/4HANA uses ledgers. Overhead cost transactions, whether internal cost transfers or external invoice postings, are made with reference to a ledger. Reports also allow you to select and review financial data by ledger.

In SAP S/4HANA Cloud, public edition, the leading ledger (0L) is assigned the local accounting principle for each company code. In addition, in the SAP S/4HANA Cloud, public edition system, you can define parallel ledgers for IFRS (International Financial Reporting Standards) (2L) and US GAAP (Generally Accepted Accounting Principles) (3L) accounting standards.


SAP S/4HANA Cloud, private edition allows for more flexibility when configuring ledgers and accounting principles.

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