8/30/2014

difference betwen cost element and gl account | SCN

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3 Replies Latest reply: Nov 27, 2007 10:28 AM by Arun Kumar

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juhi sinha

Nov 27, 2007 10:02 AM

difference betwen cost element and gl account

This question is Assumed Answered.
Sir,
1.Can u please explain the difference between Primary and Secondary Cost Element.And what is
the linkage between primary and secondary cost element
2. Please expalain the difference between Cost Element and GL
Thanking You
Juhi Sinha

Helpful Answer by Arun Kumar

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Arun Kumar Nov 27, 2007 10:12 AM (in response to juhi sinha)
Re: difference betwen cost element and gl account
Hi,
1. Primary cost elements are like materail costs, personnel costs, energy costs... where a
corresponding GL account exists in FI..to allow costs to flow...
Secondary cost elements are like production costs, material overheads, production overheads, they
can be created and administered in only CO. These are used in internal cost allocation, overhead
calculation, settlement transactions., it does not flow to FI...
General - Cost Element
Basically, cost element are carriers of costs.
Primary Cost Element
When cost element carriers cost between FI and CO they are called Primary, the link is established
GL A/c = Cost element(Primary). A question may arise as to whether all GL accounts are cost
element, it again depends upon the business requirement, where COPA is active then revenue
account (GL) are also cost elements, where COPA is not active then revenue account (GL) should not
be made as an cost element.
Example....
Again cost of goods sold particularly in VAX (make to stock) is not an cost element, where the same
COGS in VAY (make to order) is a cost element. Price Difference account should not be made as

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8/30/2014

difference betwen cost element and gl account | SCN

cost element.
Entry while booking expenses
Travel Expenses A/c - with Cost Centre Dr. Rs.YY
(will be a GL A/c and cost element) - entries flows to CO thru FI
To Cash A/c Cr. Rs.YY
Secondary Cost Element
When cost element carries cost with in CO, then they are called secondary cost element.
Example.... - Take Product Costing
On manufacture of the goods the cost of the above product (production order) is arrived at
accumulating material cost + operational cost + overheads (%), additive cost if any.
The cost of operation is accumulated in cost centre be it production / production service / service cost
centres, while booking FI entries.
Those operational cost has to be allocated to production order based on operational activities carried
on and its cost involved in it. Those operation activities in CO are termed as activity types and has to
link the same in KP26 with rates and cost centre (ie., sender cost centre and receiver production
order).
In order to find the production order cost, the allocation of cost from sender cost centre to production
order for the operational activities carried on and its cost associated with it, have to be loaded, hence
in CO the cost centre allocate that portion of operational cost to production order, and this cost is
carried by a cost element (since there are no FI involvement and entries are flowing within CO by
crediting sender cost centre and debiting receiver production order a cost element has to be
created.... say "Operational Cost - Activity" the entry will be
Operational Cost - Activity (Production Order) Dr Rs.XX
To Operational Cost - Activity (Cost Centre) Cr Rs.XX
The entries are with in CO. And the cost element created is secondary since it does not has an link
with GL Account in FI correspondingly.
2. in FI its GL and the same cost carrier in CO is cost element.
Reg
Arun

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juhi sinha Nov 27, 2007 10:20 AM (in response to Arun Kumar)
Re: difference betwen cost element and gl account
Sir,
Why cost element are linked to Controlling Area
whereas GLs are linked to Company code
Thanking You
Juhi Sinha

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Arun Kumar Nov 27, 2007 10:28 AM (in response to juhi sinha)
Helpful Answer Re: difference betwen cost element and gl account
Hi,
address me as Arun, im just a normal FI consultant.
well FI and CO are two diff modules. Actual real time scenario is there will be two
departments, one finance and the other is controlling. Finance is used for reporting external
parties such as govt, share holders, etc. i.e., for preparing P&L and balancesheet. CO is
used for internal management. Eg: in FI we just show that a cost has been incurred in
buying something, but controlling shows us where exactly the cost has incurred, i.e., in
which dept, for which project, for whom, etc.

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difference betwen cost element and gl account | SCN

so as stated earlier, cost elements are carriers of these costs from FI, they carry these
costs and put in diff buckets such as internal order, cost center, etc.
so ie cost elements are linked to CO and GL are linked to company code cause the
company code is the basic org unit in FI.
hope its little bit clear. just surf some websites for more clear info.
Reg
Arun

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