SAP Scene

Period Based Accounting versus Cost of Sales Accounting

These terms come up in the SAP documentation fairly often and I frequently get asked what the difference is.  There are a number of ways of explaining the differences.

For the accountants it is usually enough to say the 'Period Based Accounting' is Accrual Accounting and 'Cost of Sales' is 'Cost of Goods Sold' Accounting.    In CO-PA one has the option to choose or use either Account based or Costing Based CO-PA.  This choice impacts the level of detail and the frequency (monthly, weekly or realtime) of reporting.

What does this mean effectively to us non-accountants and practically in the SAP system?

Period based Accounting 

"Period based" means that during the month or period, all and only actual events / transactions are posted in the appropriate period.  At the end of the period estimated accruals and deferrals are made and posted to that posting period to give a more accurate view of profit.  IE any expected revenues and expenditures that should relate to the current period are accrued for and equally any prepaid expenses or revenues are deferred to the next period.  (Accruals and Deferrals are posted temporarily, usually to special accounts, and reversed prior to the next period end.)

These accruals and deferrals are usually done at a fairly high level of summarisation (eg: at company or business area).  The FI Ledgers and financial statements etc are always period based. 

Cost of Sales Accounting

Cost of Sales in SAP means that we attempt to record or rather report the "costs of sales" against the actual sale at as low a level as possible and during the period. (In CO-PA this is down to a transaction level.)   This enables the company to get a reasonably accurate view of profitability on a real time basis.

This is done by using either standards or estimates for many of the components that make up the "cost of goods sold".  Any variations from the standards are usually posted through to the cost of sales system either at monthend or when they occur.  

For example: A product cost estimate might be used to calculate and post a manufactured cost through to CO-PA when every sale goes through.  The actual production orders  variances from the product cost estimate can then be settled to a separate line in CO-PA. This has the benefits that

•  a reasonably accurate gross profit could be reported in real time at a transaction level and of course therefore at all the characteristic levels in CO-PA.
• the impact of any abnormal variances in production can quite clearly be seen and analysed separately from the normal profitability of a product.

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