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Cost Elements in SAP – Know the Types and How to

Last Updated on January 14, 2022 by Pradeep
Create it – An informative Guide
Published by Pradeep on September 18, 2020
What Cost Elements in SAP?

Cost Elements in the SAP system creates a link between Finance posting with Cost
 Object like Cost Center, Order, Profitability Segment, etc.


In this blog, we will learn how to create Cost Elements in SAP and differentiate between the

various cost elements types to use them correctly.

Although Cost Element Accounting does not offer much functionality. Still, an organization must
implement it for its business in order to use all the other Controlling Subcomponents.

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Master Data Cost Elements

A key aspect of the Cost element is Master Data Cost Elements. Here we create primary and
secondary cost elements.

At the beginning of Cost Element Accounting, we first learn how to create cost elements. Further,
we would discuss the difference between the cost element types and categories.

Primary and Secondary Cost Elements in SAP

Cost elements are separated into primary cost elements and secondary cost elements. Since
both have their own use and importance in SAP Controlling. Thus, you should understand both
of them carefully.

Primary Cost Elements

Primary cost elements are created based on expenses accounts. They always have the same
number as the expenses account. In other words, there is a 1:1 relationship between the

expense account and primary cost elements.


In SAP ERP Financial Accounting on expense accounts, we will post all the entries in Controlling
on the primary cost elements.

To clarify, if a cost element exists for this expense account, we must first create it as a primary

cost element. So that it can reflect the postings in the controlling module.

Read Related: Interview Questions to Primary Cost Elements

Secondary Cost Elements

Secondary cost elements are created in controlling and are used for all activities that are
executed in controlling.

Certainly, these Secondary Cost elements do not cause any change in any values in the
Financial Accounting module.

Importantly, the balance of the secondary cost element is always zero. For example, it includes
cost allocations, order settlements, and so on.

Lastly, for the secondary cost element, no General Ledger exists.

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Cost Elements Categories – Primary and

Secondary
We categorize the cost element by a cost element category. There are different cost element
categories for primary and secondary cost elements.

Below is a list of cost element categories available for Primary and Secondary Cost
Elements.

Category Primary Cost Elements

01 Primary costs/reducing revenues

03 Accrual/deferral per surcharge

04 Accrual/deferral per debit actual

 11 Revenues


12 Sales Deduction

22 External Settlement


Category Secondary Cost Elements

21 Internal Settlement

31 Order/project results analysis

41 Overhead Rates

42 Assessment

43 Internal Activity allocation

It’s essential to assign the correct cost element category to the cost elements. Hence it
guarantees an integrated value chain with correct results in Controlling in SAP.

Create Primary Cost Element – KA01

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Create Secondary Cost Element – KA06

Also Read:- Changes in SAP Controlling in S/4HANA

Creation of Cost Elements in SAP

Depending on your process for the master data creation, you can decide whether you want to
create cost elements manually or automatically.

Manual Creation of Cost Elements in SAP

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If we create the cost elements manually, we need to define a process. In this process, the person
who creates the expenses accounts informs you about the new account before executing any
posting. Otherwise, you won’t be able to see this posting in SAP Controlling.

Automatic Creation of Cost Elements in SAP

If you want to create cost elements automatically, you need to do some configuration.

So here, the first setting we do is in the Chart of Accounts.

Further, we need to indicate those cost elements which the system creates automatically.

Use Transaction Code (TCode) – OB13

Steps to Create Cost Elements Automatically

Steps for Automatic Creation of Cost Elements in SAP

Next IMG => Controlling => Cost Element Accounting => Master data => Cost Elements =>
Automatic Creation of Primary and Secondary Cost Elements => Make Default Settings

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Further, we will make the default settings via the chart of accounts, which is assigned to your
controlling area.

From now on, the cost element will be created automatically with the assigned cost element
category. This is when we create a General Ledger account in the range of intervals.

Creation of Batch Job

SAP also enables you to create cost elements with a batch job, which means you also have to
maintain the default settings.

You can enter intervals or single expense General ledger accounts. Likewise, you can enter
account numbers that don’t exist as General ledger accounts and create them as secondary cost

elements.

However, for this, you need to assign a cost element category for the secondary cost element
category for the cost element.


Cost Elements Batch Input Session Creation TCode for – OKB3



Related: Cost Center in SAP

Cost Element Groups

You can place cost elements into cost element groups. These groups are often used in reporting
to define assessment cycles, and settlement profiles many more.

I recommend that you use cost element groups as much as possible in the configuration.
Because in this way you can easily adjust the settings at this time, such as changing the cost
element groups.

Cost Elements Groups TCode – KAH1

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Reporting Options
Reporting options for Cost Element Accounting is quite limited within standard SAP. This is
because we require them only for reconciliation purposes.

Cost Element Report TCode – S_SL0_21000007

Also Read: SAP CO Interview Questions


EndNote

With this article, you understood the key uses of cost elements and where and how we utilize

them in the SAP ERP system of a business.

The components of cost elements i.e. primary and secondary play the key role in the functioning
of it and their catagorization makes the job of the SAP consultant easier.

The cost elements are also plays the similar important role in SAP S/4HANA version too. It adds
even more features and functionalities with the enhanced software.

However I advise if you are new to this subject, then first learn the Cost element in SAP ECC
thoroughly and then upgrade further to S/4HANA Finance.

Watch Related Video on: Cost Element Accounting in SAP FICO

Categories: SAP FICO

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