Methods of Calculating Profits in EC‑PCA 

The methods of calculating profits in Profit Center Accounting differ with regard to their

·         time reference (periodic or transaction‑oriented)

·         content (period costs or cost of sales)

·         valuation base or form of representation (account‑based or costing‑based)

(For more information, see the detailed description in the online manual CO-PA Profitability Analysis.)

In Profit Center Accounting, the data is stored and displayed by period and account (see Data in Profit Center Accounting). This corresponds to the organizational principle in Financial Accounting. As a result, the uniform report structure in these two components makes it possible for you to reconcile the data in cost accounting and financial accounting based on cost elements.

You can calculate profits using the period accounting method as well as the cost‑of‑sales method.

Comparison of Period Accounting and Cost‑of‑Sales Accounting

Whereas in many countries companies prefer to use the period accounting approach, most English‑speaking countries perform profitability accounting using the cost‑of‑sales method. To meet the needs of as many customer as possible, Financial Accounting in the SAP R/3 System supports both of these methods. EC‑PCA consequently also supports both methods, in order to allow you to reconcile the data between the two components.

In period accounting, business results are represented according to cost and revenue elements. This makes it possible to recognize which factors of production cause the costs which are incurred. The total costs for the period can then be compared to the total revenues earned during the same period. These costs include the costs of all the goods and services produced in the period, regardless of whether or not they were sold, plus the goods and services produced in previous periods and sold in this period. This sum, together with the capitalized internal activities and the changes to work in process, yields the total result for the period.

 

The more market‑oriented cost‑of‑sales approach compares the costs to the corresponding quantity structure of the revenues. Revenues are only compared to the costs incurred for the quantity of goods or services sold. When products are sold from stock, it may be that the costs were incurred during a previous period. In this approach, no distinction is made between different cost elements. Instead, resource usage is divided according to the functions R & D, production, sales and administration.

The predefined standard reports in Profit Center Accounting (see Information System) are based on a division according to the period accounting approach. To analyze results using the cost‑of‑sales approach, however, it is necessary to find the functional area specified in FI or CO. Since you can define these functional areas and the rules by which they are used, you need to define your own reports if you want to use the cost‑of‑sales approach. You can find information about how to do this in the section Calculating Profits Using the Cost of Sales Approach.