The document discusses key concepts in cost accounting (CO) in SAP. It explains that CO is used to manage and record costs and provide internal performance reporting. It also discusses how cost elements integrate financial accounting (FI) and CO. The document then covers various CO applications and functionalities like cost center accounting, product costing, profitability analysis (COPA), internal orders, and profit center accounting. It discusses how these different applications integrate with modules like FI, sales and distribution, and materials management. Finally, it provides details on concepts like the operating concern, controlling area, assignment of company codes to controlling areas, and activation of different components in a controlling area.

1. CONCEPTS IN CO
 CO is used for managing and recording of costs
and providing information to the management for
internal assessment regarding performance of the
units.
The cost element is the main integration point
between FI and CO.
GL account is nothing but nature of financial
transaction whereas cost element is nothing but
nature of expenditure & revenue

2.  redistribute the costs between the departments
using cost center accounting. We collect the costs
department wise, we distribute to other
departments and finally we allocate to product
costing based on how the product utilized the
resources in each department

3. PRODUCT COSTING
 provide cost of the product in detail cost like each
component wise cost (material, labor, overheads
etc) and what is the internal and external resource
utilization. Here we get 3 types of costing:
Standard cost: It is an estimated cost to produce a
product
Plan cost: it is an estimated cost for completion of
job
Actual cost: It is the actual cost (material, internal
and external resources) incurred for completion of
the Job

4. COPA:

provides information to the management regarding
product profitability, does the multi-dimensional
analysis (with different dimensions like region,
product etc) and we can see cost of sales and
contribution analysis with respect to market
segment wise.
The major integration is
 from product costing (COGM),
 from Fl (selling expenses),
 cost center accounting (marketing department
costs),
 from SD and customer service

5. PROFIT CENTER ACCOUNTING

It is used to know the internal units (SBU) profits
and how these SBUs are performing. It integrates
with all the modules

6. INTERNAL ORDERS
 Expenditure level analysis
 E.g exhibition costs, r&d projects, building costs

7. ACTUAL COSTING ML
 Actual costs
 E.g price differences/exchange rate changes

9.  OPERATING CONCERN:
 It is the highest organizational unit, in the controlling
module and at this level it records, tracks and
analyzes of marketing related activities and also we
can do the market segment profitability analysis.
The operating concern is required only for
Controlling Profitability Analysis (COPA) purpose.

10.  CONTROLLING AREA:
 It is the CO organizational unit and at this level it
records and analyzes
 the overhead related activities (cost element, cost
center accounting, and internal orders),
 manufacturing related activities (product costing)
 and also activities of internal units analysis or
evaluation of the internal unit analysis (profit center
accounting)

11. :
ASSIGNMENT OF COMPANY CODE TO
CONTROLLING AREA:
 We can assign 'n' number of company codes to one controlling area subject
to the following conditions:
 Chart of accounts should be the same between company code and controlling
area, that means the accounting structure should be the same between the
company code and controlling area.

 The fiscal year should satisfy the below conditions between the company
code and controlling area:
 a. The number of posting periods should be the same (other than the
special periods)
 b. The start period and end period should be the same
 c. The start date and end date of each period should be the same

12. THE BENEFITS OF THE MULTIPLE COMPANY CODES
UNDER SINGLE CONTROLLING AREA.
 Cross company code cost accounting transactions
for reallocation of costs across the Company codes
within the controlling area.
 Partners product costing.
 For the purpose of group costing
 Transfer price.

13. ASSIGNMENT OF CONTROLLING AREA TO THE
OPERATING CONCERN:

 We can assign 'n' number of controlling areas to one
operating concern, subject to the following condition:
 1. The fiscal year variant code should be same between
the controlling area and operating concern (even though
we have same number of posting periods and start and
end periods etc of the fiscal year variant related to both
operating concern and controlling area)

 NOTE: There is no problem related to currency, each
company code have their own local legal currency but in
controlling area they need to maintain one common
currency (it is only for management reporting purpose
and not for legal requirements) ex: Euro, same way with
the operating concern currency also.

14. LEADING AND NON LEADING LEDGERS:
If the above conditions are not satisfied between
company code and controlling area then we
need to create more than one controlling area or
if we want to use the same controlling area for
all the company codes, then we need to use the
concept of leading and non leading ledgers.
Earlier it was called as special purpose ledgers.
Normally we adopt one leading ledger for the
parent company, and can be used parallel
ledgers in order to address local requirements.

15. LEADING LEDGERS:

 In the leading ledger, we will maintain the fiscal
year and chart of accounts as per parent company
(Group Company).
 " The leading ledger only integrated with CO
module and logistic module
 We can have only one leading ledger per client.

16. NON LEADING LEDGERS
 :
 Used to address the local legal requirements or
accounting principles.
 Non leading ledgers are also called as parallel ledgers.
 Non leading ledger is not integrated with CO and
logistics module.
 In non leading ledgers, we can maintain additional
currencies in addition to the leading ledger and also we
can maintain different fiscal years and different posting
periods.
 For the same company code also we can have number
of non leading ledgers to address different accounting
standards/accounting principles

17. CONTROLLING AREA:
 The controlling area can be define maximum 4
digits code either numeric or alpha numeric codes.

 The controlling area is the controlling organizational
unit and at this level it records, track and analyze
the overhead activities (Cost Element accounting,
Cost Centre accounting and Internal Order
accounting) Manufacturing related activities
(Product Costing) and also internal unit activities
(Profit Centre accounting).

18. ASSIGNMENT CONTROL TAB:
 There are two options for Company code and
controlling area integration


 COMPANY CODE-> CONTROLLING AREA:
 1. Controlling area same as company code.
 2. Cross-company-code cost accounting.
 We can select either Controlling area same as
company code (or) Cross-company-code Cost
Accounting

19. IN CASE OF CONTROLLING AREA SAME AS COMPANY CODE IT IS
NOT POSSIBLE TO GET THE FUNCTIONALITIES OF:
 Cross Company code Functions
 Partners Cost Component Split
 Group Costing
 Transfer Price Concept

20. IN CASE OF CROSS-COMPANY-CODE COST ACCOUNTING WE CAN
GET THE FUNCTIONALITIES OF
 Cross Cost Accounting Functions
 Partners Cost Component Split
 Group Costing
 Transfer Price Concept
 Note: The better option is always to select Cross-
company-code cost accounting even though if you
are having one company code in the organization
by taking care of the future requirements.

21. IF WE CAN ASSIGN NUMBER OF COMPANY CODES TO ONE
CONTROLLING AREA AND SUBJECT TO SATISFY THE BELOW
CONDITIONS (N: 1):-
 The accounting structure should be the same between
Company code and controlling area. That means the
Operational chart of accounts should be the same
between the Company code and controlling area.

 The fiscal year variant should satisfy the below
conditions:-
 Number of normal posting periods should be the same
between the c=Company code and controlling area.
 The Start period and End period should be the same
between the Company code and controlling area. *" The
Start date and End date of each period should be the
same between the Company code and controlling area.
 If not satisfying the above conditions then we need to
create the more than the one Controlling area

22. 
 (OR)
 If you want to use the same Controlling area then you need to use the concept of
Leading Ledger and Non-Leading Ledger.
 Leading Ledger:

 In the Leading ledger we can maintain the Fiscal year and Operational chart of
accounts as per the parent company. The Leading ledger only is integrated with
Controlling and Logistic modules.
 Non- Leading Ledger:
 To address your local legal requirements OR Accounting principles we can use the
Non-Leading ledgers.
 We can maintain more than the one Non-Leading ledger per company code to
address and legal management requirements.
 Non-Leading ledgers is not integrated with Controlling and Logistic modules.
 We can maintain the additional currencies in addition to the leading ledgers, and
also we can maintain different Fiscal year variants and different posting periods at
the Non-Leading ledger.

23. CURRENCY TYPE:

 We need to specify the currency type on the controlling area for
the purpose of which currency is needed to analyze the
transactions in the controlling area.
 If do not have Multiple ledger concept particularly Multiple
Currency and Multiple valuations, in that case we can use any
other currency type.
 However the best option is either Controlling area currency type
or Group currency type.
 In case of the multiple currencies and Multiple valuations are
using in Material Ledger concept then the best option is always is
the Group Currency instead of the Controlling area Currency
type.
 The reason is not to use the controlling area currency type is that
the controlling area currency type is not available in the Fl.
 So, in this case there might be data inconsistency between
Finance and Controlling modules.

24. CURRENCY:
 In case of controlling area currency type, we need
to specify the currency i.e. which currency we
use manually.

 Ex: INR (because like other currency types, we
don't have currency mentioned for Controlling area
currency type in Fl)

25. DIFFERENT COMPANY CODE CURRENCY:

 The activation of different company code currency
is done automatically based on the currency type
used in the controlling area.

 Ex: if we select any currency type other than 10
(company code currency), system Automatically
activates this field.

26. CURRENCY/VALUATION PROFILE:

 It is required for the purpose of transfer price concept
and also for multiple currencies and multiple valuation
purposes. But without using the option of
currency/valuation profile, we can get directly multiple
currencies and multiple valuations by using the other
option in the material ledger. (It will be discussed clearly
in material ledger concept)

 The main requirement of currency/valuation profile is
required only for transfer price concept. If we want to
use currency/valuation profile, then we need to activate
the material ledger concept.

27. STANDARD HIERARCHY:
 It is the hierarchy which consists of list of the cost
centers in the structured form. It is the highest node
in the hierarchical tree.

28. RECONCILIATION LEDGER:
 Internal CO allocations are logged in the
reconciliation ledger and can be reported to
Financial Accounting with the reconciliation posting
CO-FI.
 If you do not want to use the reconciliation ledger
(that is, you do not use any reconciliation ledger
reports and do not wish to carry out any CO-FI
reconciliation
 postings), you can deactivate it. To do so, deselect
the Reconciliation Ledger Active indicator in the
master data of your controlling area.
 After new gl concept it comes under new gl concept
so we will deactivate here

29. REAL-TIME INTEGRATION CO->FI:
 Deactivate real-time integration of internal CO
allocations under Financial Accounting (New) ->
Financial Accounting Basic Settings (New) ->
Ledgers -> Real-Time Integration of Controlling with
Financial Accounting -> Define Variants for Real-
Time Integration. You can then deactivate company
code validation by deactivating company code
validation in the control indicators for the controlling
area.

30. ACTIVATION OF CO COMPONENT
 FISCAL YEAR:
 We need to specify the validity of the fiscal year of
the Controlling area, if we have the HR module in
that case we need to check the HR module how old
are HR data to update in the HR module.
Accordingly we need to update the controlling area
customization from that year onwards.
 While uploading HR data in the SAP the system
check the validity of the controlling area.

31. ACTIVATE COMPONENTS TAB: <?
ACTIVITY TYPE:
 They represent the activities of the department or
output of the departments. It is required to track the
activities and type recording in the production
module and also used to charge the direct OH to
the product costing based on the activity spent on
the job.
 Ex: machine activity, labor activity, assembly
activity and cleaning activity etc
 The indicator of the Activity type it allows to use
Activity type for actual postings. That means the
actual primary cost can be assign directly to the
Activity type and Cost Centre.

32. WE CAN ASSIGN THE ACTIVITY TYPE AS ON ACCOUNT ASSIGNMENT
OBJECTS IN THE FOLLOWING APPLICATION AREAS:
PERSONAL COST FOR PAYROLL ACCOUNTING
 You can enter the activity type in the time sheet or time recording.
 Depreciation posting on the activity type in asset accounting:
 The activity type can be assign in the asset master in addition to the Cost
Centre and
 Orders.
 Direct Fl postings:
 We can assign the cost directly to the activity type and Cost Centre while
posting in
 financial accounting.
 In Controlling:
 Repost the Line item: We can repost the line item for the activity type
 Note: The cost assign to the activity type OR Ignore during a subsequent
distribution

33. COMMITMENT MANAGEMENT:
 Commitment is the expected expenditure in future,
the purpose of activation of commitment
management is that we can get in the reports what
is the commitment given against the budget and we
can see what is the available budget.
 Example:
 Budget for the project X is 10000
 Expenditure incurred against the project X is 2000
 Purchase order placed to the vendor for the project
X to procure the material is 3000
 From the above example we can get the budget
details in table like below:

34. BUDGET USED BUDGET COMMITMENT AVAILABLE BUDGET
10000 2000 3000 5000

35. PROFIT CENTRE ACCOUNTING:
 It is not required to activate the Profit Centre
account if using the New GL concept.
 Need to activate Profit Centre accounting in case if
you want to use the Classical Profit
 Centre accounting.

36. PROJECTS:
 To update the controlling transactions to the
Projects.

37. SALES ORDER:
 The purpose of the indicator to update the
controlling transactions to the sales order.
 That means to update the cost and revenue to the
sales order.
 This indicator needs to be activated if we are
having the scenario of Sales order costing,
 Example: When we are manufacturing customer
specific (Make to Order scenario) Example:
Engineering order (Project systems)

38. SALES ORDER WITH COMMITMENT
MANAGEMENT

 if we want to use the commitment management for
sales order in that case we need to activate
commitment management with respect to sales
order.

39. COST OBJECT:

 Cost object is nothing but cost collector. The cost
collector may be cost center or internal order or
production order or sales order or profitability
segment (PSG) or product cost collector.
 But, the meaning of the cost objects in the
controlling area is as below:

 In case of product cost by period, the cost object is
the product cost by hierarchies.
 In case of product cost by order, the cost object
hierarchy is CO product group.

40. ALL CURRENCIES:
 The purpose of activation of all currencies is to
update the values in transaction currency and also
in object currency (reporting currency) along with
controlling area currency. If we have not activated
'all currencies' check box, in that case the values it
update are only in controlling area currency.

 Note: It is not possible to Activate (or) Deactivate
all currencies indicator after saving the Controlling
area

41. VARIANCES:
 The activation of indicator is for the purpose of
calculation of price variances for primary cost
postings (external procurement). The variance
spoken here is not for production variances
purpose.

 Ex: The external procurement cost is 3000 and the
price variance is 50, which is included in 3000. In
that case, system calculates and displays the price
variance as 50 if we have activated variance
indicator.

42. COMPANY CODE VALIDATION:
 IF COMPANY CODE VALIDATION IS ACTIVATED:
 In that case system verifies the cross company codes
cost accounting transactions, which mean system, will
allow to post or transfer between the cost centers within
the same company code. It is not possible to transfer
from one company code cost center to the other
company code cost center.

 Ex: materials are issued from one company code to the
another company code cost center, in that case the
stock adjustment entries will be posted in company code
1 and expenditure (i.e. consumption) entries are posted
in company code 2.

43. Fl ENTRY CO ENTRY
In company code 1:
Intercompany clearing account (co. code 2) DR To stock CR
(these two are balance sheet accounts, so no CO entry)
No entry
In company code 2:
Material consumption account or expenditure DR
To intercompany code clearing account (co. code 1) CR
DR-cost center 2 (company
code 2)

44.  Ex: CO cost allocation
 Transfer or allocate the cost from administration
cost center of company code 1
 to the administration cost center of company code
2. «• In the above, the system validates
 the sender company code and also receiver

 company code and allows to post only in case both
the cost centers belong to the same company code
(not only cost centers we can use any cost object
here) ®° So, system will not allow transferring the
values to the company code 2 cost centers.

45. IF THE COMPANY CODE VALIDATION IS
NOT ACTIVATED:

 Ex: material issued from company code 1 to
another company code cost centers; in this case
both stock adjustment entries and also
consumption entry will be posted in company code
1 account books. But CO entry is posted to
company code 2's cost center.

46. EFFECTS OF COMPANY CODE VALIDATION:
ACCOUNTING:
 If the indicator is set, you can make postings to an
account assignment object (such as a cost center or
order) only from the company code that contains the
master record of the object.
 If the indicator is not set, postings from any assigned
company code are possible.
 Example: Accounting:
 Company codes 0001 and 0002 are assigned to
controlling area 0012.
 Cost center COST-1 is assigned to controlling area
0012, company code 0001.
 If the indicator is active, you can post to cost center
COST-1 from company code 0001only.
 If the indicator is inactive, you can post to cost center
COST-1 from both company code 0001 and 0002 only.

47. EXAMPLE: PURCHASING:
 Company codes 0001 and 0002 are assigned to
controlling area 0012.
 The purchasing department in company code 0001
makes a procurement order for cost
 center COST-2 in company code 0002.
 It the indicator is active,posting is not possible.
 If the indicator is inactive, goods receipt and invoice
receipt are posted to company code
 0001.

 Goods receipt: Consumption, COST-2, Dr.
To goods receipt clearing account .
 Invoice receipt: Goods receipt clearing account Dr.
TO payables

48. MAINTAIN NUMBER RANGES FOR CO
DOCUMENTS:
 CO number ranges are maintained at the CO
business transaction level. System it updates the
transactions under the relevant business
transactions for every postings to the CO (OR)
every postings within the CO.

49. FI POSTINGS TO THE CO: -

 In this case the transactions it updates under the CO business
transaction COIN.
 CO number ranges is always is year independent that is
continuous number from one year to the following years.
 We need to create the CO number range groups for
maintaining the number ranges intervals and need to the
assign business transaction to the CO number range groups.
 Example:
 Primary Postings
 Secondary Postings
 Planning Postings
 WIP Documents
 Variance Documents .... Etc.

50.  NOTE: Even though CO number ranges can be
maintained at CO business transaction level, it is
necessary to create CO number range group (to
this group only we give number range interval). We
need to create/maintain group even for one
business transaction also.

51. MAINTAIN THE CO NUMBER RANGES FOR
CONTROLLIN DOCUMENTS (KANK)
Examples:
GROUPS BUSINESS TRANSACTIONS
Primary postings COIN, FIPA, KAFM, KAZO and KZRI
Planning KAZP, KOAP, KSPO, KSPB, KZPP, KZRP, PAPL, RKP1, RKP2, RKP3, RKP4, RKP5,
RKP6, RKP7, RKP8, RKP9, RKPB, RKPL, RKPQ, RKPS, RKPU, RKPV, RKPW, RKPX,
RKPZ
Secondary postings
(whatever business
transactions left)
GPDP, JRPU, JRPV, KABG, KABM, KAMV, KAUS, KAZI, KERB, KEKZ, KEPI, KEPP,
KGPD, KKKP, KKKS, KOAO, KPIV, KPPB, KPPZ, KSIO, KSII, KSOP, KSOS, KSPA,
KSWP, KSWS, KTDA, KVAR, KZPI, KZPR, PNVI, RKIB, RKIL, RKIV, RKL, RKLT, RKLX,
RKN, RKS, RKU1, RKU2, RKU3, RKIB, RRIUL RRIV

52. VERSION:

 Versions are year dependent or time dependent. We can
copy the values from one version to another (here the
target values should be plan values, we may copy from
actual or plan values)
 The version it shows both the Plan and Actual data.
 It controls the weather allow to store Plan data, Actual
data, weather allow to store WIP, Variance.
 Each version it represent the one valuation view.
 Example: Legal (OR) Profit center (OR) Group
Valuation.

 Purpose of versions:
 Stores the values & Product costing

53. VERSION 0:
 This is the standard version given by SAP.
 We can store plan and actual data
 Actual values are always stored in 'version 0' and it
is not possible to store in another versio(other than
0)
 '0 version' values only settled to financial
accounting i.e. WIP and variances (from other
versions we can't settle)
 In addition to '0 version' we have 'n' number of
versions for the planning purpose.

54. INTEGRATED PLANNING:
 It updates the cost center planning to the other cost
center dependent module (ex: profit center) and
also it overwrites the line items for each change in
the plan data, that means the line item document
keeps the record for every planning change.
 * Ex: updating the cost center planning to the profit
center

55.  COPYING ALLOWED:
 This indicator allows the copying the values from
one version to the other version.

 EXCHANGE RATE TYPE:
 It will be required for converting company code
currency to controlling area currency.

56. VALUE DATE:

 It controls which date currency rate need to be
considered in planning transactions. If we leave it
blank, the system translates the currency by period.
The SAP system determines exchange rate based
on the starting dates from each period in a fiscal
year. If we have entered the date, system uses the
exchange rate based on the date maintain here for
all the periods. (Percent rates are applicable)

57. EXPLANATION OF REVALUATION WITH
EXAMPLE:
 During the period always plan activity rate is
applied to the product costing for the internal
purpose.
 * Ex: on 10th September we produced a one
piece of product FG X and total actual hours spent
on the job are 10 hours and planned rate applicable
is Rs.100 per hour.
 So the cost applicable to job during the period =
actual activity * plan periodic price per hour
 = 10 * 100 = 1000 .
 At the month end actual activity rate is applied to
the product costing.

58. MONTH END ACTIVITIES ARE:
 Close all Fl entries in Fl
 Redistribute the cost between departments in CO (from
service to production depts.)
 Actual activity price calculation using periodic price method,
here it is 120
 Revaluation of activities (especially difference between plan
and actual price i.e. 120 -100 =20) and this amount (10 *
20=200) used for revaluation purpose.
 At the month end after calculation of actual activity price, we
apply the difference between plan and actual price to the
product costing through the revaluation function.
 In the versions the revaluation function controls whether the
difference between plan and
 actual price to the product costing is allowed to apply or not.

59.  The revaluation has 3 options:
 DO NOT REVALUATE: System won't allow
applying the actual price to the product costing(the
difference between plan and actual price). When
we don't revaluate, the left out amount either over
or under calculated value will be transferred to
COPA under unrecovered cost element.

60. OWN BUSINESS TRANSACTIONS:
 Here system allows to apply the actual price (the
difference between plan and actual price), to the
product costing and it writes the separate line item
for the difference between the plan and actual price
 Ex: Valuation is showing = 100/- and under
revaluation is showing = 20/-. If you see the under
Own Business Transaction it will show 100/- and
20/-

61. ORIGINAL BUSINESS TRANSACTIONS:
 System allows applying the actual price (the
difference between plan and actual price) to the
product costing and it won't write the " separate line
item for the difference amount. It just overwrites the
earlier amount

62. ORDERS/PROJECTS - INTEGRATED PLANNING WITH
COST CETNERS OR BUSINESS PROCESSES:
 The purpose of this indicator as below in:
 The plan activity inputs for the internal order (here
for all orders), the plan activities are posted to the
sender cost centers
 Plan settlement of the internal order and periodic
reposting of the internal order to the cost center
updated and allowed
 Plan allocation of indirect activities from the cost
center to the internal orders allowed
 Plan assessment and distribution from the cost
center to the internal orders are allowed.

63. PURELY ITERATIVE PRICE:
 It controls whether parallel prices are calculated
and stored for the activity type as a part of price
calculation. If the indicator is active the price
calculation gives a purely iterative price as well as
the price resulting from planning. The system stores
both the prices i.e. manual price as well as plan
calculated price are stores in parallel and also you
can compare the manual price with calculated
price. The purely iterative price is used for valuating
actual activities. (We will get clarity in cost center
accounting).

64.  ACTIVATION OF PLAN AND ACTUAL:
 The indicator allows storing bothplan and actualvalues for
the version.

 VALUATION VIEW:
 It specifies which valuation view is allowed to use for this
version. Each version represents the one valuation view only.
Version 0 is not allowed for group or profit center valuation, it
is only for legal valuation.

 WIP ACTIVATION:
 System allows calculating the 'work in process and also
result analysis for this version.

 VARIANCE:
 This indicator allows calculating the production variance.