Setting Up Cost Accounting | Microsoft Docs

Before you start working with cost accounting, you must perform setup tasks.

Balances Between Cost Type, Cost Center, and Cost Object

When you set up cost accounting, you must make sure that all entries are assigned to a cost type as well as a cost center or a cost object. The means that each cost entry must have a cost type assigned and a cost center code or a cost object assigned. This rule ensures that each cost entry appears in either the cost centers or the cost objects, but never in both places.

By doing this, you create the following accounting equation:

Cost Type Balance = Cost Center Balance + Cost Object Balance

When you print the chart of cost type, the chart of cost centers, and the chart of cost objects reports, you can analyze this relationship.

Setting Up Cost Types

The chart of cost types is similar to the chart of accounts in the general ledger. You can set up the chart of cost types in the following ways:

To transfer the general ledger chart of accounts to the chart of cost types

  1. Choose the Lightbulb that opens the Tell Me feature icon, enter Chart of Cost Types, and then choose the related link.
  2. Choose the Get Cost Types from Chart of Accounts action. In the dialog box, choose the Yes button to confirm the transfer. The function uses the chart of accounts to create a chart of cost types.

    The chart of cost types now contain all income statement accounts in the general ledger and include headings and subtotals. You can change the chart of cost types, as necessary. For example, you can delete duplicate existing cost types.

    IMPORTANT

    The Register Cost Types in Chart of Accounts function updates the relationship between the chart of accounts and the chart of cost types. The No. field is filled and verified to make sure that each general ledger account is related to only one cost type. The function runs automatically before transferring general ledger entries to cost accounting.

To set up new cost types in the Chart of Cost Types page

  1. Open the Chart of Cost Types page in edit mode.
  2. Fill in the fields as described as necessary. Hover over a field to read a short description.

    NOTE

    You can set up and maintain cost types in either the Cost Type Card page or on the Chart of Cost Types page. In this procedure, you set up cost types on the Chart of Cost Types page.

  3. After you have created all cost types, choose the Indent Cost Types action. In the dialog box, choose the Yes button.

  4. Link the new cost type to the corresponding general ledger account.

    IMPORTANT

    If you have entered definitions in the Totaling fields for the line type of End-Total before you run the Indent Cost Types function, then you must enter the definitions again because the function overwrites the values in all End-Total fields.

To update cost types

  1. On the Cost Accounting Setup page, select if you want the chart of cost types to be automatically updated when the chart of accounts is changed.
  2. In the Align G/L Account field, you can choose from the following options.

Defining the Relationship Between Cost Types and General Ledger Accounts

The relationship between the cost type and the general ledger account is created in the cost type and in the general ledger account.

These two fields are filled automatically when you use the Get Cost Types from Chart of Accounts function.

Relationship Between General Ledger Accounts and Cost Types

There is an n:1 relationship between general ledger accounts and cost types. Several general ledger accounts can belong to one cost type, but each general ledger account belongs to only one cost type. The following table describes the details in the relationship.

Relationship G/L Account Range Cost Type No.
One general ledger account for each cost type One general ledger account One cost type
Several general ledger accounts for one cost type General ledger account range, for example, 7110..7193 for each general ledger account For each general ledger account in the range, there is only one cost type
Cost types without corresponding general ledger accounts
General ledger accounts whose entries will not be transferred

Cost Types Without a Relationship to the General Ledger

A cost type may not have a relationship to general ledger accounts if one of the following conditions is true:

Setting Up Cost Centers

Cost centers are departments that are responsible for costs and income. The chart of cost centers is similar to the dimension information for the general ledger. You can set up the chart of cost centers in the following ways:

To transfer dimension values in the general ledger to the chart of cost centers

  1. Set up a dimension to be the cost center dimension on the Update Cost Acctg. Dimensions page. Only the values from this dimension are transferred.
  2. Choose the Lightbulb that opens the Tell Me feature icon, enter Chart of Cost Centers, and then choose the related link.
  3. On the Actions tab, in the Functions group, choose Get Cost Centers from Dimension to transfer dimension values to the chart of cost centers. The function transfers the dimension values that you defined in step 1.

    NOTE

    You can set up the Align Cost Center Dimension field to define a one-way synchronization of dimension values from the general ledger to the chart of cost centers. You cannot define a synchronization of the chart of cost centers to dimension values from the general ledger.

The chart of cost centers now contains all specified dimension values from the general ledger and includes titles and subtotals.

To create new cost centers in the Chart of Cost Centers page

You can set up and maintain cost centers in either the Cost Center Card card or on the Chart of Cost Centers page. In this procedure, you set up cost centers on the Chart of Cost Centers page.

  1. Open the Chart of Cost Centers page in edit mode.
  2. In the Code field, enter the cost center code. All cost centers must have a code.
  3. In the Name field, enter the cost center name.
  4. Choose the drop-down arrow in the Line Type field to specify the purpose of the cost center.

  5. Fill in the Sorting Order and Cost Subtype fields.
  6. Choose the next empty line to create a new cost center, and then repeat steps 2 through 5.
  7. After you have set up all the cost centers, choose the Indent Cost Centers action. Choose the Yes button.
IMPORTANT

If you have entered definitions in the Totaling fields for End-Total cost centers before you run the indent function, then you must enter them again. The function overwrites the values in all End-Total fields.

Setting Up Cost Objects

Cost objects are projects, products, or services of a company. The chart of cost objects is similar to the dimension information for the general ledger. You can set up the chart of cost objects in the following ways:

To transfer dimension values from the general ledger to the chart of cost objects

  1. Set a dimension to be the cost object dimension on the Update CA Dimensions page. Only the values from this dimension are transferred.
  2. Choose the Lightbulb that opens the Tell Me feature icon, enter Chart of Cost Objects, and then choose the related link.
  3. Choose the Get Cost Objects from Dimension action to transfer dimension values to the chart of cost objects. The function transfers the dimension values that you defined in step 1.

    NOTE

    You can set up the Align Cost Object Dimension field to define a one-way synchronization of dimension values from the general ledger to the chart of cost objects. You cannot define a synchronization of the chart of cost objects to dimension values from the general ledger.

The chart of cost objects now contains all specified dimension values from the general ledger and includes titles and subtotals.

To create new cost objects in the Chart of Cost Objects page

You can set up and maintain cost objects in either the Cost Object Card card or on the Chart of Cost Objects page. In this procedure, you set up cost objects on the Chart of Cost Objects page.

  1. Open the Chart of Cost Objects page in edit mode.
  2. In the Code field, enter the cost object code. All cost objects must have a code.
  3. In the Name field, enter the cost object name.
  4. Choose the drop-down arrow in the Line Type field to specify the purpose of the cost object.

  5. Fill in the Sorting Order field.
  6. Chose the next empty line to create a new cost object, and then repeat steps 2 through 5.
  7. After you have set up all the cost objects, choose the Indent Cost Objects action. Choose the Yes button.
IMPORTANT

If you have entered definitions in the Total From/To fields for End-Total cost objects before you run the indent function, then you must enter them again. The function overwrites the values in all End-Total fields.

Defining Cost Centers and Cost Objects for Chart of Accounts

You can automatically transfer the expense and income entries from the general ledger to cost accounting either for each general ledger posting or with a batch job. When you do the transfer, Business Central only transfers the entries that are already linked to a cost center or a cost object. To establish a meaningful transfer, you must ensure that the cost centers and cost objects are correctly defined.

Defining Default Dimension Values for General Ledger Accounts

For each general ledger account, you can define default dimension values in the Default Dimension table. The following example shows how to define that there should always be a DEPARTMENT cost center, but never be a PROJECT cost object when posting to a general ledger account.

Dimension Code Value Posting
Department Code Mandatory
Project No Code

Defining Dimension Values for Overhead Costs and Direct Costs

You can transfer overhead costs to a cost center and direct costs to a cost object. The following table shows the optimal combination of the dimension setup values.

Transfer To Cost Center Posting Cost Object Posting
Cost Center Code Mandatory No Code
Cost Object No Code Code Mandatory
NOTE

To make sure that the predefined cost center and cost object that you set up in the general ledger are automatically carried over to cost accounting, select the Check G/L Postings check box in the Cost Accounting Setup page.

See Also

Accounting for Costs
Transferring and Posting Cost Entries
Defining and Allocating Costs
Working with Business Central



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