A key aspect of how CO and FI are integrated within the SAP S/4HANA system:
1. Primary Cost Elements:
• Example:
○ FI: Salaries expense in the P&L statement.
○ CO: Salaries expense used in cost center accounting to track labor costs.
2. Secondary Cost Elements:
• Example:
○ Depreciation: While depreciation is tracked in FI, a secondary cost element might be created to allocate depreciation costs to specific cost centers or internal orders based on factors like asset usage.
In SAP S/4HANA, the distinction between cost elements and costs, whether primary or secondary, is fundamental to how Financial Accounting (FI) and Controlling (CO) interact and provide granular insights into an organization's financial performance.
Here's a breakdown of the differences:
1. Primary Cost Elements
What they are: Primary cost elements are essentially General Ledger (G/L) accounts from Financial Accounting (FI) that are relevant for cost accounting in Controlling (CO).
1 They represent costs that originate from outside the Controlling module, meaning they have a corresponding entry in the financial statements (e.g., in the Profit & Loss statement).Purpose: They act as a bridge between FI and CO.
2 When an expense or revenue is posted in FI (e.g., salaries, raw material purchases, rent, utilities, sales revenue), if the associated G/L account is configured as a primary cost element, the cost or revenue is simultaneously captured in CO for further analysis and allocation.Characteristics in S/4HANA: In SAP S/4HANA, the distinction is even more integrated. Primary cost elements are now directly merged with G/L accounts. When you create a G/L account in S/4HANA (using transaction FS00 or the Fiori app "Manage G/L Account Master Data"), you define its "G/L Account Type."
3 For primary cost elements, you would select "P - Primary Costs or Revenue." This means there's no separate "cost element" master data record to create after the G/L account.Examples: G/L accounts for:
Raw Material Consumption
Employee Salaries
Rent Expense
Electricity Costs
Sales Revenue (if used for profitability analysis in CO-PA)
2. Secondary Cost Elements
What they are: Secondary cost elements are used exclusively within the Controlling (CO) module for internal cost allocations, re-postings, and activity allocations.
4 They do not have a direct corresponding G/L account in Financial Accounting (FI) that receives postings from external transactions.Purpose: They facilitate the internal flow of costs and values within CO.
5 They are crucial for processes like:Activity Allocations: Allocating costs of internal activities (e.g., machine hours, labor hours) from a sending cost center (e.g., a maintenance department) to a receiving cost object (e.g., a production order or another cost center).
6 Assessments and Distributions: Reallocating collected costs from overhead cost centers to production cost centers or other cost objects.
7 Settlement: Settling costs from internal orders or projects to other cost objects.
8
Characteristics in S/4HANA: Similar to primary cost elements, secondary cost elements are also created as G/L accounts in S/4HANA, but with a "G/L Account Type" of "S - Secondary Costs."
9 This allows all cost flows, both primary and secondary, to be visible in the Universal Journal (ACDOCA table).10 Examples:
Internal Activity Allocation (e.g., "Internal Machine Hours")
11 Assessment Cost Element
Settlement Cost Element for Production Orders
3. Primary Costs
What they are: Primary costs represent the actual expenses or revenues that arise from transactions with external entities (e.g., vendors, customers, employees).
12 These are the costs that are initially recorded in Financial Accounting (FI) and then flow into Controlling (CO) via primary cost elements.Origin: They originate from external business transactions.
Flow: FI -> CO (via primary cost elements).
13 Examples:
Payment for raw materials
14 Salaries paid to employees
15 Rent payments
Utility bills
Revenue generated from product sales
4. Secondary Costs
What they are: Secondary costs represent internal cost flows or reallocations that occur within the Controlling (CO) module.
16 They are not directly tied to external financial transactions but rather reflect the value of internal services, activities, or overhead distributed among different cost objects.17 Origin: They originate from internal business transactions and allocations within CO.
Flow: CO internal flow (via secondary cost elements).
Examples:
The cost of machine hours allocated from a production cost center to a production order.
The cost of IT support allocated from the IT cost center to various user departments.
Overhead costs (e.g., factory rent, depreciation of common machinery) that are collected in an overhead cost center and then assessed or distributed to production cost centers.
18
Key Differences Summarized:
Feature | Primary Cost Elements | Secondary Cost Elements | Primary Costs | Secondary Costs |
Link to FI | Directly linked to G/L Accounts in FI | Not directly linked to external FI postings | Represent actual expenses/revenues from external transactions | Represent internal cost allocations within CO |
Origin | External transactions | Internal allocations/re-postings | External business events | Internal business transactions between cost objects |
Creation S/4HANA | G/L Account type "P - Primary Costs or Revenue" | G/L Account type "S - Secondary Costs" | Result from initial FI postings | Result from internal CO allocations (e.g., activity allocation, assessment) |
Purpose | Transfer external costs/revenues to CO | Facilitate internal cost flow and allocation within CO | Capture initial costs from external sources | Distribute and reallocate costs internally for better cost control |
Affects FI | Yes, directly (through G/L accounts) | No, only within CO (though visible in Universal Journal) | Yes, they are recorded in the general ledger | No, they are internal adjustments within the CO module |
In essence, primary cost elements and primary costs deal with "what came in from outside," while secondary cost elements and secondary costs deal with "how we distributed and utilized those costs internally" to gain a more precise understanding of product, service, or departmental profitability.
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