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difference betwen cost element and gl account

Former Member
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Sir,

1.Can u please explain the difference between Primary and Secondary Cost Element.And what is the linkage between primary and secondary cost element

2. Please expalain the difference between Cost Element and GL

Thanking You

Juhi Sinha

Accepted Solutions (0)

Answers (1)

Answers (1)

Former Member
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Hi,

1. Primary cost elements are like materail costs, personnel costs, energy costs... where a corresponding GL account exists in FI..to allow costs to flow...

Secondary cost elements are like production costs, material overheads, production overheads, they can be created and administered in only CO. These are used in internal cost allocation, overhead calculation, settlement transactions., it does not flow to FI...

General - Cost Element

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Basically, cost element are carriers of costs.

Primary Cost Element

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When cost element carriers cost between FI and CO they are called Primary, the link is established GL A/c = Cost element(Primary). A question may arise as to whether all GL accounts are cost element, it again depends upon the business requirement, where COPA is active then revenue account (GL) are also cost elements, where COPA is not active then revenue account (GL) should not be made as an cost element.

Example....

Again cost of goods sold particularly in VAX (make to stock) is not an cost element, where the same COGS in VAY (make to order) is a cost element. Price Difference account should not be made as cost element.

Entry while booking expenses

Travel Expenses A/c - with Cost Centre Dr. Rs.YY

(will be a GL A/c and cost element) - entries flows to CO thru FI

To Cash A/c Cr. Rs.YY

Secondary Cost Element

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When cost element carries cost with in CO, then they are called secondary cost element.

Example.... - Take Product Costing

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On manufacture of the goods the cost of the above product (production order) is arrived at accumulating material cost + operational cost + overheads (%), additive cost if any.

The cost of operation is accumulated in cost centre be it production / production service / service cost centres, while booking FI entries.

Those operational cost has to be allocated to production order based on operational activities carried on and its cost involved in it. Those operation activities in CO are termed as activity types and has to link the same in KP26 with rates and cost centre (ie., sender cost centre and receiver production order).

In order to find the production order cost, the allocation of cost from sender cost centre to production order for the operational activities carried on and its cost associated with it, have to be loaded, hence in CO the cost centre allocate that portion of operational cost to production order, and this cost is carried by a cost element (since there are no FI involvement and entries are flowing within CO by crediting sender cost centre and debiting receiver production order a cost element has to be created.... say "Operational Cost - Activity" the entry will be

Operational Cost - Activity (Production Order) Dr Rs.XX

To Operational Cost - Activity (Cost Centre) Cr Rs.XX

The entries are with in CO. And the cost element created is secondary since it does not has an link with GL Account in FI correspondingly.

2. in FI its GL and the same cost carrier in CO is cost element.

Reg

Arun

Former Member
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Sir,

Why cost element are linked to Controlling Area

whereas GLs are linked to Company code

Thanking You

Juhi Sinha

Former Member
0 Kudos

Hi,

address me as Arun, im just a normal FI consultant.

well FI and CO are two diff modules. Actual real time scenario is there will be two departments, one finance and the other is controlling. Finance is used for reporting external parties such as govt, share holders, etc. i.e., for preparing P&L and balancesheet. CO is used for internal management. Eg: in FI we just show that a cost has been incurred in buying something, but controlling shows us where exactly the cost has incurred, i.e., in which dept, for which project, for whom, etc.

so as stated earlier, cost elements are carriers of these costs from FI, they carry these costs and put in diff buckets such as internal order, cost center, etc.

so ie cost elements are linked to CO and GL are linked to company code cause the company code is the basic org unit in FI.

hope its little bit clear. just surf some websites for more clear info.

Reg

Arun