Posting to Cost Center and Internal Order

Managing depreciation postings effectively within SAP requires a clear understanding of how to leverage both Cost Centers and Internal Orders. 

What is an Internal Order?

An Internal Order in SAP is a cost-tracking tool used to monitor costs for specific projects, tasks, or activities over a set period. Unlike cost centers, which are ongoing, internal orders are typically short-term and have clear start and end dates.

Example of an Internal Order

Suppose your organization plans to hold a Trade Fair Exhibition for one month. Instead of posting all related expenses directly to various cost centers, you can use an Internal Order (IO) to accumulate these costs. Once the exhibition concludes, you can settle these costs to relevant cost centers as needed. This approach allows management to track the total exhibition cost comprehensively, even if it spans across multiple cost centers.

Characteristics of Internal Orders

  • Short-Term Focus: Ideal for temporary projects or events.
  • Cost Accumulation: Costs are collected under the Internal Order before being settled to other controlling objects.
  • Flexible Settlement: Can be settled to various objects such as cost centers, general ledger (GL), assets, inventory, etc.
  • Detailed Reporting: Provides insights into plan vs. actual expenses, including commitments.
  • Budget Control: Internal orders allow budget allocation and monitoring.

Common Uses of Internal Orders

  1. Monitoring the Costs of Short-Term Jobs: E.g., Promotional campaigns, exhibitions, conferences.
  2. Tracking Costs and Revenues of Specific Services: E.g., Maintenance services, project-based consulting.
  3. Ongoing Cost Control: E.g., Research and Development (R&D) projects.

Types of Internal Orders

  • Overhead Orders
  • Investment Orders
  • Accrual Orders
  • Orders with Revenue

What is a Cost Center?

A Cost Center is a permanent, ongoing organizational unit within SAP, used to collect costs for areas of responsibility such as departments, functions, or locations. Unlike Internal Orders, Cost Centers are designed for continuous operations and performance monitoring.

Characteristics of Cost Centers

  • Responsibility Centers: Measure departmental performance through activities and planning values.
  • Lowest Cost Object: In SAP, cost centers are considered the base level for cost tracking.
  • Statistical Object Capability: When costs are allocated to higher controlling objects, the cost center becomes a statistical object.
  • Planning Functionality: Planning is available annually, with no budget functionality.
  • Revenue Limitation: Cannot be used as a cost object for revenue elements; revenue tracking requires higher-level CO objects.

Key Differences Between Internal Orders and Cost Centers

Aspect Internal Order Cost Center
Purpose Short-term tracking for specific tasks or projects. Ongoing operational cost tracking.
Duration Temporary, with a defined start and end date. Continuous, without a specific end date.
Budget Control Supports budget control. No budget control, only planning functionality.
Settlement Method Costs are settled according to settlement rules. Costs can be allocated but not settled.
Reporting Detailed reports including plan vs. actual and commitments. Limited to annual performance measurement.
Revenue Handling Can be used to track revenue through settlement. Not suitable for revenue tracking.

How Internal Orders and Cost Centers Are Related

In many scenarios, Internal Orders and Cost Centers work together to provide detailed cost tracking and allocation. For example:

1. Depreciation Posting to Internal Order and Cost Center

  • When an Internal Order is specified as a statistical order in the Asset Master, you can configure the depreciation posting to occur to both the Internal Order and the Cost Center.
  • This configuration is done via transaction OAYR in SAP IMG (Implementation Guide). By enabling the CO Assignment checkbox for both Cost Centers and Internal Orders, you ensure comprehensive tracking.

2. Settlement from Internal Order to Cost Center

  • Once costs are accumulated in an Internal Order, they are settled to Cost Centers based on predefined rules.
  • For example, costs incurred during a three-month conference can be accumulated under a single Internal Order. At the end of each month, these costs are settled to relevant Cost Centers.

Importance of Internal Orders in SAP CO

Internal Orders are versatile tools that enhance cost control and provide detailed financial insights. They are particularly valuable in scenarios where costs need to be tracked for temporary projects or specific tasks, with the ability to monitor budget adherence and compare planned vs. actual performance.

Furthermore, by utilizing settlement profiles and status profiles, SAP users can ensure compliance with legal requirements and maintain accurate financial reporting.

Frequently Asked Questions (FAQs)

Q1: What is the difference between a statistical order and a real order in SAP?

A statistical order is used only for reporting purposes and does not impact financial postings. A real order, however, allows actual cost postings and can be settled to other CO objects.

Q2: Can a Cost Center be used to track revenue?

No, Cost Centers are designed for cost tracking only. Revenue is tracked using higher-level CO objects or Internal Orders designed for revenue management.

Q3: How do you configure depreciation postings to both Cost Center and Internal Order?

You can do this via transaction OAYR in the SAP IMG. Enable the CO Assignment checkbox for both Cost Centers and Internal Orders.

Q4: Why would you use an Internal Order instead of a Cost Center?

Use an Internal Order when you need to track costs for a specific, temporary project or event with a clear start and end date. Cost Centers are better for ongoing operational expenses.

Q5: Can Internal Orders be settled to FI objects like GL accounts?

Yes, Internal Orders can be settled to various objects, including GL accounts, assets, inventory, and other CO objects.

Q6: How do Internal Orders support budget control?

Internal Orders allow you to set budgets and monitor actual costs against those budgets, providing alerts or restrictions when limits are exceeded.

Conclusion

Understanding the difference between Internal Orders and Cost Centers is crucial for effective financial management within SAP. While Cost Centers provide continuous operational monitoring, Internal Orders are indispensable for tracking temporary projects and events with detailed reporting and budget control. By configuring them properly, organizations can enhance their financial insight and optimize resource allocation.

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