Profit Centers vs.

Business Areas

The aim of this note is to provide a summarized list of points to clarify the distinction between Business Areas
and Profit Centers. It is a compilation in tabular form of numerous other studies made in the past on this
subject by various SAP colleagues. It is intended to provide some assistance in choosing the appropriate
objects to represent a company’s segment, product-line, division or other reporting structures. It is not in itself
a formal or final position/strategy paper about business areas and profit centers and is currently intended for
internal use only.

Standard Definitions (from Glossary and Dr. Kagermann’s Organization White Paper 1995):
Business Area: an organizational unit within financial accounting which represents a separate area of
operations or responsibilities within an organization. Financial accounting transactions
can be allocated to a specific business area.

Profit Centers: a subdivision of a business organization which is set up for internal management control
purposes. Operating profit can be calculated for profit centers on the basis of the cost-of-
sales and/or the period accounting methods. By incorporating certain balance sheet
account values into the calculation, a profit center can be extended to become an
investment center.

BUSINESS AREA PROFIT CENTER

Intended purpose
Dependence on structure of legal
entity
Posted Elements within
Organizational Entity
Financial / External accounting
view. Focus on Balance sheet and
income statement. External
segment reporting.
Not dependent on structure of legal
entity, Business Areas are defined
within one client and can be used
accross all company codes within
that client.
Based on Financial accounting
GL/AP/AR..Accounts
Management accounting view.
Focus on controlling and
management of profit
responsibility. Key figures and
ratios are extensively used to assess
profitability, return on investment
and other performance measures.
The Profit Center is created within
a controlling area and therefore
dependent on the assignment of
Company codes to that Controlling
areas. The Profit Center is not
dependent on the structure of the
legal entities for those company
codes assigned to its controlling
area. If there is a one-to-one
relationship between Company
Code and Controlling area, then the
Profit center is directly associated
with the legal structure of the firm.
Based on Primary and Secondary
Cost Elements.

Balance Sheet Items
Non-operating costs
Hierarchies
Distribution/Assessment tools
Controlling for CO-objects
US-GAAP/SEC External Segments
(Both objects have in the past been
used by customers to represent
external segments)
Consolidation
BUSINESS AREA
In general all balance sheet items
can be assigned to the Business
Area. Note: if equity, taxes or
bank account postings need to be
differentiated by BA they need to
be allocated manually (Rel. 4.0C
will include some tools that should
make the handling of this easier.)
Can be posted to Business Areas
No hierarchies or alternate
hierarchies available.
No (planned for Release 4.0C)
Assignment to controlling objects
such as cost centers and internal
orders is possible. Secondary cost
element postings however are only
tracked in summary for cross-BA
postings via a subsequent posting
via the reconciliation ledger.
Therefore no details of secondary
postings is directly available.
Some open issues:
Derivation from Customer
Inventory & cost of sales accounts
(Material movements that don’t
result in FI documents)
Material reassignments sometimes
require the creation of a new
material with the new asssignment.
Inter- business area eliminations
and Legal Consolidation of
business areas is available as of
release 3.0
PROFIT CENTER
All Balance sheet items can be
carried into the Profit Center.
Similar to the comment for the
BAs, in the case of: equity, taxes,
bank or other postings not
automatically assigned, a special
entry can be made in Profit Center
accounting (Transaction: 3KEH) to
transfer these postings to a profit
center.
(It is planned as of 4.0 that all items
except A/R & A/P can be posted
through online. If the Profit Center
can be uniquely identified in the
documents, then the subsequent
BA/PA readjustment postings can
also be determined and posted
through to the Profit Centers. See
documentation for Transactions
F.5D and 1KEK).
(The posting of downpayments
through to Profit Centers has been
improved with release 3.1I)
To make the hierarchical
differentiation of the assignment of
Balance sheet items for ratio
analysis easier, one can assign a
profit center that only carries the
appropriate B/S items to a higher
node in the Profit Center hierarchy
if desired.
Non-operating can also be carried
into the Profit centers with the
technique mentioned above.
Hierarchies and alternate
hierarchies available.
Yes
Numerous CO- objects can be
assigned to the profit center.
 Cost centers
 Orders
 Profitability Objects (through
settlement rule)
Some open issues:
Cost of Sales representation: Direct
association of production costs to
sale.
With the release of the EC-CS
Consolidation module, profit center
eliminations are available for
consolidation.

Return on Investment
Secondary Cost Elements
Performance
Ledger and posting structure
Assignment to fixed assets
Assignment from MM
Assignment from SD
Open Item Management
Transfer Prices for material
valuations
Considerations for companies that
often restructure or change
assignments
BUSINESS AREA
ROI is misleading due to missing
secondary cost elements. (this
could be resolved by using postings
made to the reconciliation ledger
and posting these back to FI)
Not tracked online. Secondary cost
element postings are received in
summary for cross-BA postings via
the reconciliation ledger.
Some rumours about performance
problems with more than 35
business areas but tests have
confirmed that performance
remains stable. (For details please
see note nr. 72800)
Part of standard general ledger.
(Table GLT0 Ledger 00) The
Business Area posting refers to the Ledger: 8A)
FI-Document.
Entered into Asset master record
Derived from combination of
Division and Valuation Area
1) Derived via the division and
plant.
2) Can also be derived via the
Sales Organisation
BA entries can be tracked in
subledgers allowing OI tracking.
(warning: BA split not always
available at subledger level unless profit center ledger periodically.
split is made manually at posting.
Tools available with Release 4.0C generated in Profit Center
should make this easier)
Business Area-based transfer prices Profit-center-based transfer prices
not available in standard.
Plant/division assignment to Bus.
Area can be changed easily,
however inventory balances must
be reset for new BA which is
difficult without writing a report to other controlling objects is
reset these. The same is true when necessary.
this change is at the material level.
In either case, there is the issue of
resetting previously posted
documents.
PROFIT CENTER
ROI calculation possible.
Tracked by profit centers online
through assignment to controlling
objects such as cost centers and
orders.
Several hundred Profit Centers
generally cause no problems.
However, this question depends on
how many detail postings are made
to accounts and further keys
required in the Profit Center
databases.
Profit centers post to their own
fixed ledger. (Table: GLPCT
Profit centers have their own
documents and also receive
‘shadow’ or statistical postings for
the costs posted to assigned cost
centers/orders... In general,
revenues are posted directly to the
profit center while costs are posted
via the assigned objects.
Derived via assignment to cost
center.
Derived from material master
record on plant level
Profit center is entered directly in
the materialat the level of the plant
or can be derived through
derivation rules. For example the
Profit Center can be derived from
the SD Order or the Distribution
channel.
No direct integration into the
subledgers. However, A/R and A/P
balances can be transferred to the
Furthermore, reports can be
accounting that can drill down to
the open items in the AR & AP
subledgers.
will be available as of Release 4.0.
In addition to the point about
resetting previously posted
documents a redefinition of
hierarchies and assignments to

Reporting
Closing: Valuation of OI in foreign Using the functionality of
currency (SAPF100)
Closing: Analysis of A/P A/R
according to remaining life
(SAPF101)
Closing: Valuation of account
balances in foreign currency
(RFSBEW00)
Closing: GR/IR Clearing
(RFWERE00)
Closing: Provisions for doubtful
debts (SAPF104)
Closing: BA/PC Adjustement for
cash discounts and exchange rate
differences (SAPF181)
Payment Program
Dunning
Cash management and forecast
Substitution
Planning
Inter-company transactions
For further Information see OSS/CSP Notes:
BUSINESS AREA
Business Area balance sheets can
be created using standard FI tools
such as the RFBILA00 balance
sheet creation program or the Data
Recall Facility (Recherche
reporting tool.)
subsequent adjustment.
Possible if business areas have been
posted to at the subledger postings
for every item.
Possible if business areas have been
posted to at the subledger postings
for every item.
Yes
Planned for release 4.0C
Yes
Postings can be split by BA if
required business areas have been
posted to at the subledger postings
for every item.
Possible to manage dunning by
Business Area
Reporting across business areas
possible if postings were made to
each business area separately.
Currently business areas cannot be
substituted
Separate planning structures need
to be set in FI. Integration of CO-
Plan data is planned for release 4.0
Intercompany clearing accounts
currently to do not carry the
business area or Profit Center
assignment. Subsequent posting
possible but often incorrect due to
missing partner information.
72800
40738
PROFIT CENTER
Reports must be created using the
report painter (report writer)
function. Standard reports are
available.
Using the functionality of
subsequent adjustment but without
direct posting through of exchange
rate differences.
Reporting of remaining life only
available over a separate report.
No
No. But information available over
separate report.
No
Yes
No. Technically one could imagine
a similar scenario as for BA if each
document were manually split.
Dunning program cannot be split by
profit centers
No reporting on profit center
Profit Centers can be substituted.
Can access all plan data available
on CO objects and allows direct
profit center planning.
Same as for business areas.