Introduction - Set up cost types
Cost Accounting in Business Central helps you to understand the costs of running a business. Setting up a few master data types in Business Central will help you track costs. These master data types are cost types, cost centers, and cost objects.
Set up cost types
Cost types for operational accounting have almost the same function as G/L accounts do for the general ledger. In small and mid-size businesses, cost types and G/L accounts are structured similarly in most cases. This similar structure enables you to transfer the chart of accounts from the general ledger and then customize it to fit your cost accounting needs. However, you can also build the chart of cost types in a way that is completely independent of the general ledger chart of accounts.
To access the chart of cost types, follow these steps:
Select the Search for Page icon in the top-right corner of the page, enter Chart of Cost Types, and then select the related link.
Select any line, and in the ribbon, select Edit to open the Cost Type card.
On the Cost Type card, you can find the following fields:
No. - The number of the cost type is frequently the same as the corresponding income statement account in the general ledger. However, users can define the number that they want. The only rule is that the numbers must appear in ascending order.
Type - Specifies the purpose of the cost type and is used to structure the chart of cost types by inserting totaling lines. The options in this field are:
Cost Type
Heading
Total
Begin-Total
End-Total
Totaling - Range of the subtotals.
Cost Classification - The program uses this option as a filter, such as when a user wants to analyze only the cost types that contain fixed costs. The setup has no other effect on the processing of the cost accounting. The options in the Cost Classification field are:
Unidentified
Fixed
Variable
Step Variable
Fixed Share - In this text field, users can enter a comment that further explains the setup in the Cost Classification field.
G/L Account Range - Users can decide which general ledger accounts to transfer to this cost type. With a 1:1 relationship between a G/L account and a cost type, users only enter one G/L account number. If there are several G/L accounts to summarize in one cost type, enter the range, such as 4000..4060. The field is filled by the program if users create the cost type automatically from the general ledger. However, users can change it later if necessary.
Cost Center Code & Cost Object Code - These codes serve as a default value for cost posting that is captured later in the cost journal.
Combine Entries - Users set this option if they want to later transfer general ledger entries as a combined entry per Day or Month. The None option indicates that each general ledger entry should be transferred individually to cost accounting.
Balance - This field shows the balance of all entries in the cost type. Drill down to show the individual cost entries that contribute to this balance. With the FlowFilters Cost Center Filter and Cost Object Filter, users can restrict the balance that is shown to only the entries that fit the filters.
Balance to Allocate - This field shows the net amount that can still be allocated. The entry in the Allocated field in the Chart of Cost Types determines whether a cost entry is a part of this field.
Relationship between the cost type and the general ledger account
The relationship between the cost type and the general ledger account is created in the cost type and in the general ledger account.
The G/L Account Range field in the Cost Type table establishes which general ledger accounts belong to a cost type.
The Cost Type No. field in the chart of accounts establishes which cost type that a general ledger account belongs to.
These two fields are filled automatically when you use the Get Cost Types from Chart of Accounts function.
A n:1 relationship exists between the G/L accounts and cost types, which means that several G/L accounts can belong to one cost type, but each G/L account belongs to at most one cost type.
Depending on how much later the G/L entries should be transferred to cost accounting, you have several opportunities to define this connection and to fill in the two fields, as shown in the following table.
| Relationship | G/L Account Range | Cost Type No. |
|---|---|---|
| One general ledger account for each cost type | One general ledger account | One cost type |
| Several general ledger accounts for one cost type | General ledger account range, for example, 7110..7193 for each general ledger account | For each general ledger account in the range, there is only one cost type |
| Cost types without corresponding general ledger accounts | ||
| General ledger accounts whose entries will not be transferred |
Cost types with no relationship to the general ledger
Three situations when you might have cost types with no relationship to general ledger accounts are:
Accounts of operational accounting, such as Calc. Interest and Depreciation, that only take costs from operational accounting.
Helping cost types, such as cost types 9901 and 9903, that are used as credit and debit accounts for allocations.
The helping account 9920, which contains actual accruals. It shows the difference between costs and the expense from the general ledger.
Watch the following video demonstration on setting up cost types.