Business Area vs Profit Center
Business Area: an organizational unit within financial accounting which represents a separate area of
operations or responsibilities within an organization. Financial accounting transactions can be allocated to
a specific business area.
Profit Centers: a subdivision of a business organization which is set up for internal management control
purposes. Operating profit can be calculated for profit centers on the basis of the cost-of-sales and/or the
period accounting methods. By incorporating certain balance sheet account values into the calculation, a
profit center can be extended to become an investment center.
Business Area
Intended purpose Financial / External accounting
view. Focus on Balance sheet
and income statement. External
segment reporting.
Dependence on structure of Not dependent on structure of
legal entity legal entity, Business Areas are
defined within one client and
can be used across all company
codes within that client.
Posted Elements Based on Financial
within Organizational accounting
Entity GL/AP/AR.Accounts
Balance Sheet Items In general all balance
sheet items can be
assigned to the
Business Area. Note: if
equity, taxes or bank
account postings need
to be differentiated by
BA they need to be
allocated manually
Non-operating costs Can be posted to Business
Areas
Hierarchies No hierarchies or alternate
hierarchies available
Profit Center
Management accounting view.
Focus on controlling and
management of profit
responsibility. Key figures and
ratios are extensively used to
assess profitability, return on
investment and other
performance measures.
The Profit Center is created
within a controlling area and
therefore dependent on the
assignment of Company codes
to that Controlling areas. The
Profit Center is not dependent
on the structure of the legal
entities for those company
codes assigned to its controlling
area. If there is a one-to-one
relationship between Company
Code and Controlling area, then
the Profit center is directly
associated with the legal
structure of the firm.
Based on Primary and
Secondary Cost
Elements.
All Balance sheet items
can be carried into the
Profit Center.
Similar to the comment
for the BAs, in the case
of: equity, taxes, bank
or other postings not
automatically assigned,
a special entry can be
made in NewGL
Non-operating can also be
carried into the Profit centers
with the technique mentioned
above.
Hierarchies and alternate
hierarchies available
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Business Area vs Profit Center
Distribution/Assessment
tools
Controlling for CO-
objects
US-GAAP/SEC External
Segments
(Both objects have in the past
been used by customers to
represent external segments)
Consolidation
Performance
Ledger and posting structure
Assignment to fixed assets
Business Area
Yes
Assignment to
controlling objects
such as cost centers
and internal orders is
possible. Secondary
cost element postings
however are only
tracked in summary for
cross-BA postings via
a subsequent posting
via the reconciliation
ledger. Therefore, no
details of secondary
postings are directly
available. (this has to
be checked using
universal journal in
S/4)
Some open issues:
Derivation from Customer
Inventory & cost of sales
accounts
(Material movements that don’t
result in FI documents)
Material reassignments
sometimes require the creation
of a new material with the new
assignment.
Inter- business area eliminations
and Legal Consolidation of
business areas is available
Some rumors about
performance problems with
more than 35 business areas
but tests have confirmed that
performance remains stable
Refer to OSS Note 72800)
Part of standard general ledger.
The Business Area posting
refers to the FI-Document.
Entered into Asset master
record
Profit Center
Yes
Numerous CO- objects
can be assigned to the
profit center.
· Cost centers
· Orders
· Profitability
Objects
(through
settlement rule)
Some open issues:
Cost of Sales representation:
Direct association of production
costs to sale.
Profit center eliminations are
available for consolidation
Several hundred Profit Centers
generally cause no problems.
However, this question depends
on how many detail postings are
made to accounts and further
keys required in the Profit
Center databases.
Profit centers receives ‘shadow’
or statistical postings for the
costs posted to assigned cost
centers/orders... In general,
revenues are posted directly to
the profit center while costs are
posted via the assigned objects.
Derived via assignment to cost
center.
In S/4, assets can be assigned
to profit center/segment if
segment reporting is active
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Business Area vs Profit Center
Assignment from MM
Assignment from SD
Open Item Management
Transfer Prices for material
valuations
Considerations for companies
that often restructure or change
assignments
Reporting
Dunning
Cash management and forecast
Substitution
Planning
Inter-company transactions
Business Area
Derived from combination of
Division and Valuation Area
Derived via the division and
plant.
Can also be derived via the
Sales Organization
BA entries can be tracked in
subledgers allowing OI tracking.
(BA split not always available at
subledger level unless split is
made manually at posting or via
document splitting)
Business Area-based transfer
prices not available in standard
Plant/division assignment to
Bus. Area can be changed
easily, however inventory
balances must be reset for new
BA which is difficult without
writing a report to reset these.
The same is true when this
change is at the material level.
In either case, there is the issue
of resetting previously posted
documents
Business Area balance sheets
can be created using standard
FI tools such as the RFBILA00
balance sheet creation program
Possible to manage dunning by
Business Area
Reporting across business
areas possible if postings were
made to each business area
separately.
Currently business areas cannot
be substituted
Separate planning structures
need to be set in FI.
Intercompany clearing accounts
currently to do not carry the
business area or Profit Center
assignment. Subsequent
posting possible but often
incorrect due to missing partner
information
Profit Center
Derived from material master
record on plant level
Profit center is entered directly
in the material at the level of the
plant or can be derived through
derivation rules. For example,
the Profit Center can be derived
from the SD Order or the
Distribution channel.
No direct integration into the
subledgers. (only in ACDOCA
with document splitting)
Profit-center-based transfer
prices available
In addition to the point about
resetting previously posted
documents a redefinition of
hierarchies and assignments to
other controlling objects is
necessary.
Reports must be created using
the report painter (report writer)
function. Standard reports are
available.
Dunning program cannot be split
by profit centers
No reporting on profit center
without document splitting active
Profit Centers can be
substituted.
Can access all plan data
available on CO objects and
allows direct profit center
planning.
Same as for business areas