What is Cost Element Accounting

COST ELEMENT ACCOUNTING

Creation of primary and secondary cost elements (Automatic Creation)

Cost Element Accounting is the area of cost accounting where you track and structure the costs incurred during a settlement period. It is thus not an accounting system as such, but rather a detailed recording of data that forms the basis for cost accounting.

In an integrated accounting system such as the SAP system, you do not need to enter cost data separately. This is because each business transaction that involves costs updates the CO component with detailed information on the cost element and on the account assignment object itself. Each consumption transaction in Material Management (MM), each billing in Sales and Distribution (SD) (= revenue), and each external transaction for invoice verification flows directly through the G/L Account (= cost element) to the corresponding account assignment object.

Cost elements classify an organization’s valuated consumption of production factors within a controlling area. A cost element corresponds to a cost-relevant item in the chart of accounts.
We distinguish between primary cost and revenue elements and secondary cost elements.
Primary Cost/Revenue Elements: A primary cost or revenue element is a cost or revenue-relevant item in the chart of accounts, for which a corresponding general ledger (G/L) account exists in Financial Accounting (FI). You can only create the cost or revenue element if you have first defined it as a G/L account in the chart of accounts and created it as an account in Financial Accounting. The SAP System checks whether a corresponding account exists in Financial Accounting.
Examples of primary cost elements include:

· Material costs

· Personnel costs

· Energy costs

Secondary Cost Elements: Secondary cost elements can only be created and administrated in cost accounting (CO). They portray internal value flows, such as those found in internal activity allocation, overhead calculations and settlement transactions.
When you create a secondary cost element, the SAP System checks whether a corresponding account already exists in Financial Accounting. If one exists, you can not create the secondary cost element in cost accounting.
Examples of secondary cost elements include:

· Assessment cost elements

· Cost elements for Internal Activity Allocation

· Cost elements for Order Settlement

Cost elements in Controlling (CO) are closely related to the general ledger accounts used in Financial Accounting (FI). This is because the SAP System is structured as an Integrated Accounting System: