Outlining Cost Center Accounting Processes

You have been hired by the Bike Company as a controller. One of your tasks is to support overhead cost controlling functions in the management accounting department. The Bike Company recently implemented SAP S/4HANA and everyone is adjusting to using the new system. But what is overhead cost controlling? What are the common tasks you will be performing and how do you use SAP S/4HANA to perform them?

First, have a look at some of the main elements you need to know:

• Management accounting provides internal, business-relevant information that helps management assess the economic impact of decisions and detect financial trends early on. Well-functioning and integrated management accounting is an essential tool for successful strategic and operational enterprise management.

• Overhead cost controlling supports you to plan, allocate, control, and monitor overhead costs for accurate profitability and product cost reporting. Allocation tools allow you to transfer costs posted to cost centers to your products and services to ensure the company’s profitability.

• The Controlling area (CO area) is the organizational unit that represents the cost accounting system in SAP S/4HANA, ensuring a common structure across all company codes. In SAP S/4HANA Cloud, public edition, the controlling area A000 is pre-configured and mapped with the group currency type. The controlling area can’t be changed. In the private cloud and on-premise environments there is more flexibility offered.

• The Company code is the smallest organizational unit of external accounting for which a complete, self-contained set of accounts can be created. All transactions that must be entered to produce external compliant financial statements, such as the balance sheet and the profit and loss statement are entered and evaluated at company code level.

• Currency types allow you to record transaction figures in different currency valuations. Currency translation happens during posting according to the maintained translation rates. The following currency types are available in the SAP S/4HANA Public Cloud system:

  • Transaction Currency (00) – The currency entered on a journal entry.
  • Company Code Currency (10) – The local currency of the country the company operates in.
  • Group Currency (30) – The common currency of the corporate group, common for all company codes.
  • Freely-Definable Currency – An additional optional currency type to fulfill other business requirements.

• Accounting principles are legal frameworks that govern how accounting figures are entered, valuated, and reported. In SAP S/4HANA accounting principles are assigned to and updated through ledgers. SAP delivers the following ledgers with the following underlying accounting principles:

  • 0L - Local GAAP: The mandatory ledger that maps the local generally accepted accounting principles (GAAP) for your country and industry.
  • 2L - IFRS: An optional ledger that maps the International Financial Reporting Standards (IFRS) accounting principle.
  • 3L - US-GAAP: An optional ledger that maps the US GAAP accounting principle.

• A Chart of Accounts (COA) contains the G/L accounts used by one or more company codes. For each G/L account, the Chart of Accounts displays: the account number, name, and function as well as how the account is created in the corresponding company code and controlling area. SAP S/4HANA Cloud allows you to use different charts of accounts to keep track of your daily business transactions and prepare financial reports at different corporate levels using different accounting standards:

  • The operating COA contains the G/L accounts you use for daily postings in all your company codes. In SAP S/4HANA Cloud the operating chart of accounts is YCOA.
  • The group COA contains the G/L accounts that are used by the entire corporate group and is needed if you use external consolidation and reporting. It is optional.
  • The alternative COA is specific to a country and contains the G/L accounts that meet specific legal reporting requirements in that country. It is optional.

In this lesson, we will introduce the key processes we will go through in this course. Each video below illustrates common business scenarios and how they are mapped to SAP S/4HANA terminology.

The example above shows the need for cost center master data management, where you create new cost centers and assign them to the cost center standard hierarchy.

In the video, we show direct postings using primary cost accounts, as well as the ability to reassign costs directly in overhead cost controlling.

In this example, we use auxiliary cost centers to collect overhead costs that can't be attributed directly to departments at the time of entry. We then use allocation cycles to spread the costs to the actual departments. We use plan or actual quantities posted on statistical key figures to split the costs fairly.

Here, we use activity types so that cost centers that provide services to other departments can charge these services in a transparent way. We maintain a cost rate for the per unit cost of these services. Finally, we post direct activity allocations to debit the receiver cost centers for the service quantities provided using secondary cost accounts.

Finally, we introduce cost planning per cost account for cost centers and the requirement to use the embedded analytics in SAP S/4HANA to keep track of performance and check for variances.