CONTROLLING CHAPTER SETTINGS

CHAPTER 23 CONTROLLING BASIC SETTINGS
Table of Contents
1 Introduction to Controlling .............................................................................................. 2
1.1 Differences between FI & CO ........................................................................................ 2
2 Organization structure ................................................................................................... 3
2.1 Organization structure ................................................................................................... 3
3 Business scenario (Case study)..................................................................................... 5
4 Limitations of Financial accounting ................................................................................ 5
5 Understanding important vocabulary ............................................................................. 6
6 Controlling Basic Settings Configuration ........................................................................ 7
6.1 Create Controlling Area ................................................................................................. 9
6.2 Maintain Number ranges for controlling documents ..................................................... 11
6.3 Maintain Number ranges for controlling documents ..................................................... 13
7 Cost Element Accounting............................................................................................. 15
7.1 Cost Element Report ................................................................................................... 19
1 venkat.emani@yahoo.com
1 Introduction to Controlling
Controlling provides you with information for management decision-making. It facilitates
coordination monitoring and optimization of all processes in an organization. This involves
recording both consumption of production factors and the services provided by an organization.
All data relevant to costs flows automatically from Financial Accounting to Controlling. As part of
this process, the system assigns costs and revenues to different CO account assignment
objects like cost centers, profit centers, internal orders etc.
Financial Accounting: (External Accounting)

External accounting is directed “outwards” and is regulated strictly by traditions and laws to
ensure comparability. Most organizations therefore illustrate their financial accounting in the
same general manner. The principles of double-entry bookkeeping, the division into profit-and-
loss balances, and period-based accounting are used in most countries, meaning that financial
accounting in those countries is similar.
Controlling: (Internal accounting)
Internal accounting, on the other hand, is purely for the internal use of the firm and serves to
control and manage the organization. It is not dependent on external regulations and can be
constructed along the lines set by executive management. A software solution for internal
accounting must therefore be flexible enough to meet greatly varying requirements
1.1 Differences between FI & CO
Standards versus Flexibility

Accounting
report
STANDARDS ...................
................... Banks
External Accounting GA
:::::::::::::::::::
AP
FLEXIBILITY
Internal Accounting
SAP AG U02XXCG.ppt 11/27/97 / 1
Listed below are a few differences between FI and CO
Financial Accounting Controlling

1. FI Represents external accounting 1.Controlling represents internal
2. Responsible for statutory compliances

2.Responsible for managing and checking of
enterprise operations
3.Generates P&L , BS and Cash flow 3. Generates internal reports for decision making
statements and analysis
4. Follows certain standards ( IFRS/US 4. Follows own standards ( Best business

GAAP) practices)
2 Organization structure
2.1 Organization structure
Operating Concern
 The Operating concern is the highest level of Profitability and sales and marketing
controlling and the central organizational unit in Profitability Analysis (CO-PA) used to
segment and structure the market.
 Several Controlling Areas can be assigned to an Operating Concern. In turn one or more
company codes can be assigned to each of these controlling areas.
The Controlling Area
 The Controlling areas structure the internal accounting operations of an organization

within controlling. They represent closed units that are used to calculate costs. All
internal allocations relate solely to objects that belong to the same controlling area.
 A controlling area can incorporate several company codes so that cross company cost
allocations can be taken into account.
 Each company code can have several plants.
The main areas in Controlling are used for different tasks and types of analysis:
 Cost Element Accounting classifies the costs and revenues posted to CO. It also enables
the reconciliation of the costs in CO with Financial Accounting (FI).
 Overhead Cost Controlling examines the causes of costs in the functional areas of an
enterprise. In many enterprises, overhead costs have increased rapidly. These include
costs that cannot be directly assigned to a product or a service. While strong progress has
been made for controlling costs and optimizing processes in the production areas, the
overhead costs remain unclear, meaning that it is difficult to judge what caused these
costs. Activity Based Costing (ABC) provides you with more ways of allocating costs.
 Product Cost Controlling is used for costing and evaluating the cost of goods
manufactured for a product, and the costs and possibly revenues when providing a service,
or when carrying out a project (plan and actual). This provides the tools for a
comprehensive analysis of the value added processes in an enterprise.
 Profitability Analysis deals mainly with analyzing the results of enterprise activities on the
external market. It enables you to determine how successful the enterprise is in different
market segments (product divisions or customers for example) and how this data has
developed over a period of time.
 Profit Center Accounting analyzes the success of the subareas in the enterprise which
are responsible for profits. It can represent the internal market in the enterprise, particularly
if the functions of multiple valuation approaches and transfer prices are used.
 The cost flow in CO can mean the need for reconciliation between internal and external
accounting. In Cost Element Accounting, the reconciliation ledger provides reporting
functions for identification of the cost differences between FI and CO. It can also be used
for reconciliation posting to Financial Accounting (FI) if required.
3 Business scenario (Case study)
Let us take a scenario where ABC Group has a Plants and other departments to
manufacture Televisions and Washing Machines.
This is how the layout looks like.
1. What are the various cost centers in the above layout?

2. What profit centers are there in the above layout
4 Limitations of Financial accounting
The management wants to know the total cost incurred in a month in Canteen/Stores&
assembling etc.
Is it possible to get that data from FI ?
It is not possible this in FI, Hence we need to use controlling module in SAP
5 Understanding important vocabulary
Cost Centers: They represent the areas where costs are incurred/ collected. Generally for
every cost center there is a person who is responsible for all the costs incurred in his/her CC’s.
You can set up cost centers based on functional requirements, distribution criteria, activities
provided, geographical factors, and /or areas of responsibility.
Cost Elements: They describe the origin of costs. Cost elements can be either primary (flow
from FI) or secondary ( arise in Co). Primary cost elements arise through the consumption of
production factors that are sourced externally. Secondary cost elements arise through the
consumption of production factors that are provided internally (that is by the enterprise itself)
Activity Types: Categorize production and service activities provided by a cost center to the
organization and used for allocating costs of internal activities to the beneficiary of the costs.
Statistical
Statistical Key Figures (values that describe a cost center) are used as the basis (tracing
factor) on which to make allocations (assessment, distributions) and to analyze SKF’s.
Master data Groups: You use master data groups to summarize the various types of master
data in cost center accounting for analysis, planning, and allocation purposes.
Standard hierarchy: The standard hierarchy is a classification structure to which all cost
costs centers within a controlling area must be assigned. You can structure/classify your costs
centers to meet your requirements.
6 Controlling Basic Settings Configuration
 The controlling area is the basic organizational unit in Controlling. A controlling area is a
closed entity used for cost accounting. You can only allocate costs within a controlling area.
These allocations cannot affect objects in other controlling areas. You can assign more than
one company code to a controlling area. This enables cost accounting across company
codes.
 Note: The controlling area and its company codes must always use the same chart of
accounts and the same fiscal year. (only the number of special periods may vary).
 Profitability Analysis (CO-PA) is used within the operating concern. The operating concern
is an organizational unit that represents the structure of external market segments for the
enterprise. You can assign several controlling areas to each operating concern, for the
purpose of analyzing them together.
 The company code is an independent accounting unit. Financial and profit & loss statements
are prepared at company code level to meet legal reporting requirements. Business areas
(BA) can be used to group strategically business fields, and for reporting in the form of P&L
and financial statements (not suitable for auditing, reporting purposes only). Business areas
can also be cross-company code.
 The plant represents a production unit. It represents the central organizational unit in R/3's
Materials Management and Production Planning. When you define organizational structures,
you assign plants to company codes.
 The purchasing organization is an organizational unit of MM Purchasing and the sales
organization is an organizational unit in SD Sales & Distribution. Both are only important for
CO in that this data needs to be included for integral business processes between Logistics
and Accounting.
Multiple Assignment
CO Profitability
Profitability EC-
PA Operating
Analysis Concern
Analysis Currency: EURO PCA
CO
Profit Center Accounting

CO PC
OM
Controlling area 1000

 Currency: EURO
 Chart of accounts
- Operative INT
 Fiscal year variant K4
FI Company code 1000 Company code 2000

 Currency: EURO  Currency: $
 Chart of accounts  Chart of accounts
- Operative INT - Operative INT
- Local: CAUS
 Fiscal year variant K4  Fiscal year variant K4
SAP AG 2001
 By assigning more than one company code to a controlling area, you can perform cost
accounting for all company codes. You can allocate values in CO that affect more than one
company code.
 In cross-company code cost accounting, the controlling area and the company codes can
have different currencies. The currency of the controlling area can be the same as that for a
company code. It can also differ from the currency of all the company codes assigned to the
controlling area.
 You can use three currencies in CO:
 Controlling area currency
 Company code currency OR object currency
- Cross-company code cost accounting defaults the company code currency as the object
currency. You cannot change this default. If you have only assigned one company code
to the controlling area, the object currency can be assigned for each controlling object
(such as a cost center) as required.
 Transaction currency
- The transaction currency is the currency used for posting a document to CO.
 You can assign more than one company code to a single controlling area. All companies in
the controlling area must then use the same operative accounts. However, these accounts
can be linked to country-specific accounts using the alternative account number that is stored
in the master data record for accounts.
6.1 Create Controlling Area

Controlling area configuration is the starting point of configuration in CO module, which will
enable us to configure cost center, internal order, profit center, product costing and then the
profitability analysis modules.
We will configure Controlling area 1001 (ABC Group). The management of ABC Group would
like to have a single controlling area, so that they can have cross company code controlling.
That means all company code of ABC Group worldwide will be assigned to this controlling area
in future.
Currently, ABC group has only one company code 1009 ABC Electronics Inc and this company
code will assigned to controlling area 1001 ABC Group. A group is located in Germany and
currency used for group reporting is EUR (Group currency)
Via Menus
IMG Controlling  General Controlling  Organization Maintain
Controlling Area
Via Transaction Code OKKP
Double click on
Click on and update below details:
Select
Click to create Standard Hierarchy.
Double click on
If you have already created master data, you cannot then remove the company codes already
assigned. However, you can assign more company codes to the controlling area.
Select and Double click on

ABC Group required following modules in Controlling:
Cost Center Accounting
Internal Order
Profit center Accounting
Product Costing
Profitability Analysis (we will activated this at a later stage)
Accordingly, update the below details:
Select
6.2 Maintain Number ranges for controlling documents
Via Menus IMG Controlling  General Controlling  Controlling 

Organization  Maintain number ranges for controlling documents
Via Transaction Code KANK
Click on
Click on
Select
6.3 Maintain Versions
Via Menus IMG Controlling  General Controlling  Controlling  Organization

 Maintain versions
Via Transaction Code OKEQ
A “version” can be thought of as a unique view of planned costs and revenues, given a
particular set of assumptions. In the planning process, many different versions can be created,
and different planned values created for each version. Each version is independent of all others.
The SAP R/3 System automatically creates version 000 when you create a controlling area. The
actual values created when entering primary costs and allocating costs internally are posted in
this version. This version must be used for plan/actual cost comparisons. Version 000 is the
version used for analyzing actual data.
Planning always take place within a plan version
Select “Version 0” and double click on “Settings for Each Fiscal Year”
Provide Controlling area
Select
Select check boxes under integrated planning and Select
Select and provide output device in the below screen
Select
Select
7 Cost Element Accounting

Cost elements describe the origin of costs. Cost elements are defined as either primary or
secondary. Primary cost elements arise through the consumption of production factors that are
sourced externally. Secondary cost elements arise through the consumption of production
factors that are provided internally (that is, by the enterprise itself).
Every Profit and Loss GL account that needs to be controlled has to be defined as a cost
element in SAP. Just as in FI General Ledger Accounts exist, in Controlling we have Cost
element.
Primary Cost Elements are those which are created from FI general Ledger Accounts and
impact the financial accounts e.g. Travelling expenses, consumption account in fact any Profit
and Loss GL account. Primary cost elements are those whose cost origin is outside controlling
module.
Secondary Cost Elements are those which are created only in controlling and do not affect the
financials of the company. It is used for internal reporting only. The postings to these accounts
do not affect the Profit or Loss of the company. Secondary cost elements are used to allocate
cost within controlling module.
Important Cost Element Categories:
Primary Cost Element Categories:

1 - Primary costs / cost-reducing revenues
11 - Revenues
12 - Sales Discounts
22 - External Settlement
Secondary Cost Element Categories:

21 - Internal Settlement
31 - Order / Project results analysis
41 - Overhead Rates
42 - Assessment
43 - Internal activity allocation
Via Menus IMG  Controlling  Cost Element Accounting  Master Data 

Automatic creation of primary and secondary Cost Elements  Make
default settings
Via Transaction Code OKB2
Provide and update below details:
Click on and click on
Click on (OKB3)
Click on
Click on
Click on (SM35)
Click on
Click on
Click on
Click on to view session details like success or failures etc.
7.1 Cost Element Report

Via Menus Accounting Controlling  Cost Element Accounting  Information
systems Reports for Revenue and cost elements (New)Master
Data Indexes Cost Elements: Master data reports
Via Transaction Code KA23
Provide below details
Click on

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CHAPTER 23 CONTROLLING BASIC SETTINGS

Financial Accounting: (External Accounting)

1.1 Differences between FI & CO

Standards versus Flexibility

SAP AG U02XXCG.ppt 11/27/97 / 1

Financial Accounting Controlling

2. Responsible for statutory compliances

4. Follows certain standards ( IFRS/US 4. Follows own standards ( Best business

2.1 Organization structure

The Controlling Area

 The Controlling areas structure the internal accounting operations of an organization

3 Business scenario (Case study)

1. What are the various cost centers in the above layout?

4 Limitations of Financial accounting

5 Understanding important vocabulary

6 Controlling Basic Settings Configuration

Profit Center Accounting

Controlling area 1000

FI Company code 1000 Company code 2000

6.1 Create Controlling Area

Click on and update below details:

Click to create Standard Hierarchy.

Select and Double click on

Profit center Accounting

Profitability Analysis (we will activated this at a later stage)

Accordingly, update the below details:

6.2 Maintain Number ranges for controlling documents

Via Menus IMG Controlling  General Controlling  Controlling 

6.3 Maintain Versions

Via Menus IMG Controlling  General Controlling  Controlling  Organization

Provide Controlling area

Select check boxes under integrated planning and Select

Select and provide output device in the below screen

7 Cost Element Accounting

Important Cost Element Categories:

Primary Cost Element Categories:

Secondary Cost Element Categories:

Via Menus IMG  Controlling  Cost Element Accounting  Master Data 

Provide and update below details:

Click on and click on

Click on to view session details like success or failures etc.

7.1 Cost Element Report

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