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Difference Between Cost Centers and Internal Orders
Difference Between Cost Centers and Internal Orders
A cost center as you will know is for fixed reporting for a long time span as part of your company
structure (cost center usually = department or work center).
An internal order is used to accumulate cost for a specific project or task for a specific time period. An
internal order is therefore used for a short period with a specific deadline.
Your internal order will usually settle to cost centers (and not visa versa) according to the settlement
rule in the order setup.
An internal order can therefore be used to group all the expenses incurred to plan and hold a
conference over a 3 month period. The order can be settled on a monthly basis to cost centers.
When the conference is finished the order can be settled finally. The cost of the conference will then
be spread over 2 or more cost centers, but can be viewed in total on the internal order when needed.
Settlements are used for orders. In the setup of each order is a "settlement rule". In this settlement rule
you tell the system to which cost centers the cost in the order must be settled.
Typically, you will execute the following procedure at month-ends:
1. Settle all orders - this will settle all costs on orders to cost centers.
2. Run assessment cycles - Now that you have al costs against cost centers from your orders, you can
start distributing costs between cost centers with assessments.
Costs are posted to an order. When you process a purchase order you post to the internal order and not
to a cost center. The same applies to journals in FI. You will post the costs to the order and not to a
cost center. You will then settle the order on month-ends to post to the relevant cost centers. It is very
important to settle these orders otherwise FI and CO will not
balance on your system.
Internal orders can also be used as "statistical" orders. This is also specified in the setup of the order.
You do not have to settle statistical orders. When posting costs, you will post to the cost center and the
order simultaneously. Both have to be specified when posting journals or purchase orders against
statistical orders.