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CSC Confidential Tuesday, August 12, 2014
ENABLING BUSINESS
TRANSFORMATION
END-TO-END IT
SERVICES
SAP CO (Controlling)Cost Element
July 2014
Jagdish RP
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•Controlling (CO) is the term by which SAP refers to“Managerial Accounting”.
•Managerial accounting is concerned with the provisions anduse of accounting information to managers withinorganizations, to provide them with the basis to make informedbusiness decisions that will allow them to be better equipped intheir management and control functions.
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Controlling Area in SAP CO modules is a central organizationalunit under which all the internal reporting takes place.
Pre-requisite of creating a CO area
The enterprise structure should have been defined and approved by thebusiness process team
You must decide the currency you want to use
Company Codes should have been created in sap to get assigned
Operating Chart of Account should be created to get assigned to yourcontrolling area. Operating chart of account for all company code under
one controlling area must be the sameFiscal year should have been created in FI. All Company Codes assigned to
a Controlling area are must use the same fiscal year variant
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Cost Center Accounting
Profit Center Accounting
Internal Orders
Product Costing
Profitability Analysis
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Definition
Cost Element Accounting is the area of cost accounting which helps to track revenues andcosts in an organization. A cost element corresponds to a cost-relevant item in the chart ofaccounts.
Purpose
Cost Element Accounting is the part of accounting where you enter and organize costs
incurred during a settlement period. It is thus not an accounting system as such, but rather adetailed recording of data that forms the basis for cost accounting.
Each business transaction that involves costs updates the CO component with detailedinformation on the cost element. Data flows through various modules like MaterialsManagement (Consumption postings), Sales and Distribution (Revenues), through the G/LAccount (= cost element) to the corresponding account assignment objects in Controllinglike Cost Centers, Production Orders and Profitability Segments
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Structure
• We distinguish between primary cost/revenue cost and secondary cost elements
– Revenue and Expense GL Accounts in Financial (FI) Accounting are created as Primary CostElements, which is a Master data in controlling module. Primary Cost Elements carry thesame number as the corresponding GL Account number.
– Secondary Cost Elements are used to allocate costs for internal activities. Secondary costelements do not correspond to any GL Account in Financial Accounting. They are usedonly in Controlling and consequently cannot be defined in FI as an account.
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Financial
Accounting
•General Ledger
• Accounts Payable
• Accounts Receivable
•Fixed Assets
•Treasury
Controlling
•Cost Centre Accounting
•Internal Orders
•Product Costing
•Profitability Analysis
Cost Element vs GL Account
C h ar t o
f A c c o un t s
Balance
Sheet
Accounts
Adjustment
Accounts
C o s t E
l em en t s
Secondary
Cost
Elements
Income
Statement
Accounts
Primary
Cost
Elements
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Primary Cost Elements Categories :-
A primary cost or revenue element is a cost or revenue-relevant item in the chart of accounts,for which a corresponding general ledger (G/L) account exists in Financial Accounting (FI). Youcan only create the cost or revenue element if you have first defined it as a G/L account in thechart of accounts and created it as an account in Financial Accounting. The SAP System checkswhether a corresponding account exists in Financial Accounting.
Costelement
Categories
Description
Where it will be used
1 Primary costs/cost-reducing revenues Almost all G/L accounts which are of P&L Type
and Expense Accounts will be created as
Primary Cost Elements.
11 Revenues All Revenue Accounts will be created as
Primary Cost Elements of Category 11
12 Sales deduction All accounts pertaining to Sales deductible
items (sales adjustments, sales corrections)
The following Primary Cost Element Categories will be used:
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• This Process details the steps to be performed in the SAP for usage of Primary Cost Elements:
– Cost Element Category 1 – Almost all G/L accounts which are of P&L Type and Expense Accounts will be created as Primary Cost Elements. Exceptions are Price Difference Accounts, COGS Account and WIP Accounts which are P&L (Expense) accounts but will be
posted automatically to the respective Profit Centers without creating them as Cost Elements.
– Cost Element Category 11 – All Revenue Accounts will be created as Primary Cost Elementsof Category 11 to enable posting to Profitability Analysis (CO-PA). Without Revenue Elements,the revenues would not flow to CO-PA.
– Cost Element Category 12 – All accounts pertaining to Sales deductible items (salesadjustments, sales corrections) such as discounts and rebates will be created as CostElement category 12. Since these are essentially deductions, they are not posted to Cost
centers but posted directly to CO-PA.
All the primary cost elements will be created using a one-time standard batch process based onthe corresponding GL Accounts.
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Secondary Cost Elements :-
Secondary Cost Element is a cost element that is used to allocate costs for internal activities.Secondary cost elements do not correspond to any GL account in Financial Accounting. Theyare used only in Controlling and consequently cannot be defined in FI as an account.
The following Secondary Cost Element Categories would be used
Note :- Secondary cost elements are not linked to any G/L accounts, COA, where as primary
cost elements are links to general ledger accounts in SAP
Cost
element
Categories
Description Where it will be used
21 Internal settlement Used in Settlement of Real Internal Orders
31
Order/project results analysis
Used in WIP Calculation for Production orders
42
Assessment
Used in Assessment Cycles
43 Internal activity allocation Used in Activity Cost Allocation to Production
Orders
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•This Process details the steps to be performed in the SAP for usage of Secondary CostElements:
– Cost Element Category 21 – This will be used for Settlement of Real Internal Orders. Refer toPDD on Internal Orders for further details.
– Cost Element Category 31 – This will be used internally by the system for calculation of WIP.
– Cost Element Category 42 – This will be used in all Assessment Cycles for Allocation of costsbetween Cost Centers. Refer to PDD on Cost Center Accounting for further details.
–
Cost Element Category 43 –
This will be used for Activity Cost Allocation in Production Orders.Refer to PDD on Cost Center Accounting for further details.
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• In SAP multiple cost elements are grouped into Cost Element Groups.
• Multiple Cost Element Groups are created as per reporting and cost allocation requirements inthe organization
Cost
Element
Group
Cost Element Group Description Assigned Cost
Elements
Cost Element
Description
EMP Employee Costs 600001 Basic Salaries
600002 Overtime Wages
600003 Other Wages
600004 Vacation Salary
600005
Housing Allowance
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• In SAP multiple cost elements are grouped into Cost Element Groups.
• Multiple Cost Element Groups are created as per reporting and cost allocation requirements in
the organization
Process Flow Diagram
Create Cost Elements (Primary and Secondary)
C o s t A c c o u n
t a n t
E v e n t
A c c o u n t i n g
M a n a g e r
Cost Element Needs to
be created to record
CO transactions
Create
Accounts and
AccountGroups
Create Primary
Cost Element
Does Cost
Element Group
exist?
Does Cost
Element get
values from FI?
Create Cost
Element Group
Create
Secondary CostElement
Update Relevant
Cost ElementGroups
Is Cost Element an
Assessment Cost
Element?
Is Cost Element an
Activity relevant cost
element Group?
Maintain
AssessmentCost Element
Create Internal
Activity CostElement
End Process
Yes
No
Yes No Yes
Yes
No
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Sr. No. Report Requirement Transaction code
1 Create Primary Cost Element KA01
2 Change Primary Cost Element KA02
3 Display Primary Cost Element KA03
4 Create Secondary Cost Element KA06
5 Change Secondary Cost Element KA02
6 Display Secondary Cost Element KA03
7 Create Cost Elements Group KAH1
8 Change Cost Element Group KAH2
9 Display Cost Element Group KAH3
10 Display Cost Element list KA23
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Questions ?
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Thank You