Talking about SAP Controlling Module one of the basics that you should know is SAP Cost Elements (CE).
Accounting seeks to record, classify and present business transactions that satisfy external reporting such as Government and internal reporting for management decision making.
External Reporting and Internal Reporting
SAP Financial Accounting (FI) is for external financial reporting and Controlling (CO) is for internal management reporting. Organizations’ transactions are captured in Financial Accounting, Asset Accounting, Materials Management, Payroll Accounting and Sales and Distribution and the same cost and revenue information flows to Controlling through Cost and Revenue Elements. Thus Cost and Revenue Elements act as cost and revenue classification and provide information on cost flows within the internal reporting SAP Controlling component.
Necessary Data Redundancy
Now take a sip of your coffee, you have a question why this data redundancy, ONE in Financial Accounting and SECOND in Controlling?
This is a necessary redundancy as external and internal reporting have different perspectives.
While the external accounting is for statutory reporting, internal accounting is to facilitate and support management decision making.
Financial Accounting component classifies and presents costs under functional heads such as Production, Sales and Distribution, Marketing, Research and Development and Administration.
Controlling component analyze costs according to its nature, Fixed, and Variable and provide a platform for Planning and Control through Standard Costing and Variance Analysis and Market Analysis through Profitability Analysis.
SAP Cost Elements- Primary & Secondary
Cost and Revenue Elements are divided in to
1. Primary Cost Elements for cost flows from Financial Accounting to Controlling
2. Secondary Cost Elements for cost flows within Controlling
Further direct posting is possible for primary cost elements while indirect posting happens in secondary cost elements.
More about Primary Cost Element
Primary Cost Elements corresponds to General Ledger Accounts in the Operational Chart of Accounts with one to one relationship. GL account description is the default description for primary cost element.
While grouping Cost Elements internal reporting requirements should be the consideration. So Cost Element Groups can be
- Personnel Costs
- Service & Operating Supplies
- Total Maintenance Costs
- Miscellaneous Overhead Costs
Depending on the nature of business grouping can vary.
Cost Element Groups
SAP provides for grouping CEs. Cost Element groups are useful in
- Reports, say reporting for Service & Operating Supplies costs
- Collective processing, say Planning for Total Maintenance Costs
I have tried to avoid to the extent possible technical information as this post is meant to help everyone to understand CE at the macro level.
We will learn more about CE in the next part!
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