In the United States, cost accounting is used to track the various cost and profit centers of a business. Using cost accounting, you can track departments, divisions, or various geographies as if they were separate entities. You can determine how much spending or revenue is being generated for various business purposes. In Europe and other parts of the world, segmented charts of accounts are not considered Generally Accepted Accounting Practices (GAAP); cost accounting is the prevalent method used.
Through SAP Business One’s cost accounting functionality, you can establish profit centers for almost any purpose by going to:
Main Menu > Financials > Cost Accounting > Profit Centers
To use cost accounting, you define the various cost centers or departments in your company as profit centers. You then assign revenue and expense accounts to the profit centers so that any data relevant to a profit center can be updated automatically for all transactions entered in the application. Costs are allocated to profit centers using information that you define in a distribution rule (described in the next section). This means that any costs incurred are allocated to the profit centers on the basis of a specific distribution rule. If you decide that the way in which costs are allocated no longer reflects the way your company works, you simply change the distribution rule as required.
Cost accounting can be used to track and allocate shared expenses or revenues. In every company there are always expenses and sometimes even revenues that cannot be assigned to one specific business activity. These include administration costs, advertising costs, and financing costs. These indirect costs (and indirect revenues) are spread across multiple business activities using distribution rules.