Assumption for this blog
You should read some of my previous blogs to gain an understanding of the concepts around new GL and document splitting. The Blogs are under the category newGL.
I assume that you have activated newGL and document splitting features (including Profit Center self-balancing) and real time integration of FI and CO.
Impact of Overhead Allocation to newGL
In this blog, I will look at three allocation scenarios and its impact on newGL.
- Cost Center allocation within same profit center
- Cost Center allocation across same profit centers
- Profit Center Allocation in General Ledger
What am I demonstrating
In this blog, I intend to demonstrate the newGL General Ledger allocation process and some of the CO allocation processes available in SAP. Initially, I will demonstrate Cost Center allocation within Controlling. This functionality has not changed with the upgrade to ECC. Then I will demonstrate General Ledger allocation process by allocating Profit Center costs within newGL. Then I will analyse the benefits or limitations of performing allocations within General Ledger as opposed to performing allocations within Controlling.
Cost Center Allocation within the same profit center
In this simple scenario, we allocate cost from one cost center to another and both cost centers belong to the same profit center.
Cost Center overhead allocation will post a Controlling document to transfer cost from sender cost center (for example 5002) to receiver cost center (for example 5004). Since both sender and receiver belong to the same profit center, there will be no reconciliation posting back to Financials – General Ledger.
I created a cost center allocation (assessment) cycle OFCOS1 as shown below.
I am transferring posted costs from Cost Center 5002 to Cost Center 5004. Both cost centers are assigned to the same profit center 5002.
Cost Center Allocation across Profit Centers
In this scenario, we allocate cost from one cost center to another and the cost centers belong to the different profit centers.
Cost Center allocation will post a Controlling document to transfer cost from sender cost center (for example 5002) to receiver cost center (for example 5003). Since the sender and the receiver belong to the different profit centers, SAP newGL will post an entry back to Finance – General Ledger.
I created a cost center allocation (assessment) cycle OFCOST as shown below.
I am transferring posted costs from Cost Center 5002 to Cost Center 5003. The cost centers are assigned to different profit centers 5002 and 5003 respectively.
When this allocation is performed, the Finance journal entry is posted as shown below. Overhead amount of $500 is transferred from Cost Center 5002 (assigned to Profit Center 5002) to Cost Center 5003 (assigned to Profit Center 5003).
Since the posting is a cross-profit center posting, newGL will create a self-balancing entry to balance the two profit centers. The general ledger view of this document (reflecting the self-balancing entry) is shown below.
Profit Center allocation within General Ledger
In SAP ECC, Profit Center Allocation has moved from Classic EC-PCA to newGL. In newGL you can allocate costs and revenues from one profit center to another.
I created a newGL Profit Center allocation (assessment) cycle 1. Make sure you enter version = 1.
I created a segment as below. Assessment Account here is a GL Account not a type 42 cost element. Remember that this is a newGL assessment; hence the sender is a GL Account not a cost element. I created this in the same number range as with GL Account FICO Reconciliation, PCA self-balancing (as a non cost element P&L Account).
This segment transfers cost from Profit Center 5002 to Profit Center 5003.
This allocation posted a newGL Financial document as below. The balance in Profit Center 5002 of $1000 is allocated using the GL assessment account of 690003.
Since this is a cross-profit center posting, the General Ledger view is created as below.
The newGL allocation cycle is very similar to the previous FI-Special Ledger allocation and EC-Profit Center Accounting allocation functionality. However, like the EC-Profit Center Accounting allocation functionality, performing assessment in newGL very redundant and not recommended as a routine. One of the problems is that the total of cost center costs will not tie up with the associated profit center costs.
Below is a cost center report for all cost centers associated with Profit Center 5002. After cost center allocation, the net balance is $500.
Below is a General Ledger report for Profit Center 5002. The cost center balance of $500 ties with GL account 651000 ($1,000) and 690000 (-$500). Since the $500 allocated cross-profit center, newGL posted an entry into 690001 of $500.
After General allocation, the profit center balance is -$500 (GL Account 651000 + 690000 + 690003) as compared to cost center balance of +$500.
Reconciliation is rendered slightly more difficult with no significant benefits. I would recommend that all overhead allocations be performed in base (Controlling) cost objects. The only business scenarios I can envisage where General Ledger allocation will be used is where, at period end, Controlling module is closed for posting and top-side adjustments have to be performed between profit centers. Even if General Ledger allocations were used for this purpose, I would recommend that these adjustments be reversed the following periods and allocations performed using base cost objects.
I hope this blog has helped you understand the impact of overhead allocation on new GL. Please do leave your comments below whether this article was helpful; and whether you have any suggestions/ comments; or if you would like to share your experience with new GL.
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View my presentation on newGL on Slideshare
Rajesh is regarded as an authority in optimising and re-engineering Finance processes for his customers. Rajesh has 12 years experience implementing SAP / IT / BPM Finance solutions for several customers; he was involved in two large global rollouts and has a strong focus on Management Accounting and Reporting primarily Product Costing, Profitability Reporting and Material ledger (Transfer Pricing, Actual Costing). He also has 7 years experience working in the business in Finance and Accounting functions. His business process knowledge combined with his IT expertise enables him to provide his customers with best-of-breed advice on business process / IT implementations.