The Cost Centre Accounting: The basis of your financial decision making

Why should you implement cost centre accounting in your bookkeeping? In Cost Centre Accounting, the tax office does not matter, only your business. In particular, the transparency of the figures for your profit calculation is very important so that you end up not only knowing how much your net profit is, but also how it has come about.

The more precisely you know how your net profit comes about, the more likely you are to be able to influence the position of this on your own behalf. Through the introduction of a cost centre accounting, it is possible for you to establish one or two further classification criteria for any booking; that means each individual revenue item and each individual cost item. 

DATEV Cost Centre Accounting

Your Cost Centre Accounting could look like this:

For example:

Your company provides sales of 10 different products
For each of these products, you create a cost centre 1:

Cost centre 1 101 = Product 1

Cost centre 1 102 = Product 2

and so on up to cost centre 1 110 = Product 10

Advantages of cost centre accounting

  • Now you can assign each sale to one of these products, so you know at the end of an invoicing period what sales you have made of each product.
  • Now you can also assign any merchandise purchase to one of these products, so that you also know at the end of an invoicing period what gross profit you have achieved with each product.
  • Of course you can also assign further costs to these product = cost centres, such as sales commissions, freight costs, etc., and so on ...
  • The more specifically you can assign the costs to individual revenue items, the better you will know the contribution provided by individual products to your business.  

How can you obtain more information about your accounts?

Well, you could set up another cost centre - cost centre 2 - and assign the revenue not only to a product but additionally to an area or a sales representative, so that you will get further information from your accounting system, namely which sales are made with the various products in which area, or achieved by which sales representatives. When setting up a cost centre accounting you need to think through at the beginning what information you need in order to make your decisions. Once that consideration has been made, the setting up itself is associated with little effort and low cost. Will the accounting then become much more complex? Actually only marginally, there are only one or two more data fields to address in each booking. To keep the booking process lean, it is important that when creating the outgoing invoices the cost centre is exported along with it. And the purchase invoices need to be provided with the cost centre information before the scan. No great effort but a huge gain in information. You could also put service 1 to service 10 instead of product 1 to product 10. We are convinced that with the increasing competition the entrepreneur who knows exactly HOW HIS RESULTS ARISE, and can act accordingly, has the best chance. 

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