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Background documentationAccounting Methods


Profitability Analysis (CO-PA) calculates profits using the cost-of-sales method of accounting.

Profit Center Accounting (EC-PCA), on the other hand, supports both period accounting and the cost-of-sales method.

You can use both of these applications, and consequently both methods, at the same time in your organization.

The CO-PA application itself offers two forms of profitability analysis: costing-based and account-based. You can also use both of these forms simultaneously.

Profitability Analysis Using the Cost-of-Sales Method

In cost-of-sales accounting, the cost of sales is set off against revenue using either direct costing or full absorption methods (contribution margin accounting). Fixed costs can be allocated on a proportional basis or en bloc to any levels of a hierarchy. You can use standard costs to valuate the cost of sales for the purpose of obtaining a preliminary profit analysis. Or you can also transfer the variances of production orders and cost centers to Profitability Analysis in order to reconcile CO-PA with Financial Accounting (FI) on the basis of actual costs.

Costing-Based Profitability Analysis

This type of profitability analysis is primarily designed to let you analyze profit quickly for the purpose of sales management. Its main features are, firstly, the use of value fields to group cost and revenue elements, and, secondly, automatic calculation of anticipated or accrual data (valuation). The advantage of this method is that data is always up to date and therefore provides an effective instrument for controlling sales.

Account-Based Profitability Analysis

This type of profitability analysis enables you to reconcile cost and financial accounting at any time using accounts. In contrast to costing-based profitability analysis, this type uses cost and revenue elements, which gives you a unified structure for all of accounting.

The system posts all revenues and costs to both Financial Accounting and Profitability Analysis at the same time and using the same valuation method. This means that the cost of sales is posted to Profitability Analysis at the point of goods issue.

Account-Based Profit Center Accounting Using the Period Accounting Method

In period accounting, the performance of a particular business unit (profit center) - that is, its revenues, changes in inventory and capitalized services - is set off against the total costs of the period. This occurs at the G/L account level and adheres to the formal structure of Financial Accounting. This gives you a uniform structure of report data and lets you reconcile the data of cost and financial accounting on the basis of cost elements.