GL Account Profit Centers & Departments
Profit Centers & Departments are used to further categorize and report on Income and Expense activity only. They are optional.
Both Profit Centers and Departments are defined by a Code and a Name. Once you define a Profit Center or Department, you can use its Code in defining G/L Accounts that belong to it.
In general, the decision to use (or not to use) Profit Centers and Departments is driven by reporting requirements. This is usually dictated by your accountant.
Profit Centers
Profit Centers enable you to track the profitability for a logical "division" of your company while automatically rolling up this activity to the company-wide G/L Accounts. Also, a Current Earnings G/L Account is assigned to each Profit Center and any Profit Center activity is captured in this account.
Profit Centers are often location-oriented or product line-oriented (although these are not requirements).
For a location-oriented example, let's say you sell sporting goods. Such a business might have divisions in the Southeast, Northeast, Midwest, Mountain and West Coast, where each division contains similar Departments (and, in some cases, the same Departments).
Departments
Departments enable you to further categorize the activity within each Profit Center. You can then report on a Department across all Profit Centers. A Department can only be used with Profit Center Accounts; you cannot use a Department without a Profit Center.
Departments are more granular divisions of the company as a whole.
Using the sporting goods example, you might have Departments such as Cycling, Hiking, Climbing, Paddling and Skiing. Items from any of these Departments could theoretically be sold in any Profit Center. You'll probably sell hiking gear across all Profit Centers since it's a popular activity in many areas. However, more skiing gear will most likely be sold in the Mountain Profit Center than anywhere else. It could vary widely though, and Departments can be a good way to analyze this type of activity.