profit center

[Former Member]

Hi

What is the difference in profit center and business explain in detail what is the advantages and disadvantages?

Thanks

[Former Member]

Hi this are the points from Note - 321190

The business area is used in addition to the company code as a further unit for external reporting that has to be done by the company. The area of responsibility of business areas generally stretches over several company codes (lines of business, divisions). For the business area financial statement, all Controlling objects (cost center, orders, sales orders and so on) and Logistics objects (material, fixed assets) are assigned to the corresponding business areas. Then, Financial Accounting evaluations (financial statement) are additionally created for the different business areas. In addition to the reporting aspect, the business area has controlling and selection functions in accounts receivable and accounts payable accounting.

Profit Center Accounting was initially only implemented for displaying the results of internal areas of responsibility. For this purpose, all controlling objects relevant for revenues and expenses (cost center, orders, projects, sales orders and so on) were mapped on profit centers and updated with the corresponding data affecting the result. For displaying profitability key figures (return on investment), current asset and fixed asset balance sheet items as well as short-term payables were distributed to profit centers later. Consequently the profit center became more and more similar to the business area with respect to the assignment of financial statement data. The display of a profit enter hierarchy, statistical key figures, profit center assessments/distributions, as well as the clearing for internal transfer prices represent additional developments in contrast to the business area. There is, however, no balance to zero per profit enter.

[Former Member]

Hi Kowshik,

The essential difference between a profit center and a business area is that profit centers are used for internal control, while business areas are more geared toward an external viewpoint.

The profit center differs from a cost center in that cost centers merely represent the units in which capacity costs arise, whereas the person in charge of the profit center is responsible for its balance of costs and revenues.

Profit Center Accounting (EC‑PCA) lets you determine profits and losses by profit center using either period accounting or the cost‑of‑sales approach. It also lets you analyze fixed capital and so‑called “statistical key figures” (number of employees, square meters, and so on) by profit center. Consequently, you can calculate all key figures commonly used in cost accounting (return on investment, cash flow, sales per employee, and so on).

A profit center is a management‑oriented organizational unit used for internal controlling purposes. Dividing your company up into profit centers allows you to analyze areas of responsibility and to delegate responsibility to decentralized units, thus treating them as “companies within the company”.

The business area is a separate business unit capable of producing its own financial statements. Internal financial statements are not subject to the same requirements as published financial statements. Fulfilling these requirements for internal financial statements would involve unnecessary work, since this not required for internal reporting

Best Regards

Ashish Bohara