Profit Centers & Departments
Profit Centers & Departments are used (optionally) to further categorize and report on income and expense activity beyond the Company Wide account codes.
Company Wide is the first "layer", Profit Centers are the second "layer" and Departments are the third "layer." All income and expense activity will automatically roll up to the Company Wide accounts. Click HERE for a visual representation of the account code.
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.
Setup
1. Create a Current Earnings Account (OPTIONAL)
This G/L account is required in AcctVantage which means you already have a "Company Wide" Current Earnings account that you could use. Optionally, you can create unique Current Earnings for each unique Profit Center.
When creating a Current Earnings account, the department and profit center both need to be "000" and the setup type needs to be left blank.
Current Earnings is a balance sheet account used to collect the net income for current periods (i.e. before it gets flushed to retained earnings).
If you choose to use the Company Wide Current Earnings for all Profit Centers, there will be one line item to represent this account on the balance sheet.
If you choose to use unique Current Earnings accounts for each Profit Center, then you can have each account represented as separate line items on the balance sheet.
2. Create Profit Centers
Navigate to General Ledger -> Profit Centers to create new Profit Centers. Only the following fields are required:
- Profit Center Name
- Profit Center Code
- Current Earnings Account
When creating new G/L accounts to assign to the Profit Center, the Profit Center Code will be used as the last segment of the G/L account code.
3. Create Departments
Navigate to General Ledger -> Departments to create new Departments. All fields are required.
When creating new G/L accounts to assign to the Department, the Department Code will be used as the middle segment of the G/L account code.
4. Create new G/L Accounts
When you're done creating the Profit Centers and/or Departments, the next step is to create new G/L Accounts (income and expense only).
Click HERE for instructions on creating new G/L accounts.
The Profit Center segment of the G/L account code is required in order to use the Department segment. In other words, in order to use Departments there must be at least one Profit Center other than "Company Wide".