01 SAP CO Cost Element Accounting V1

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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



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.



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



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:



• 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.



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



•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.



• 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

01 SAP CO Cost Element Accounting V1

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