Profit centres with Cost and Income Centres

Please note, we talk about cost and income centres as centres within the guide as the concept can be used interchangeably. 

A cost centre is a department or function within a company that directly adds or should add to the expenses of a company and may be related to one or more chart of accounts.

The main purpose of a cost centre is to track and manage expenses across multiple expense accounts on a profit centre income statement.  

Cost centres such as human resources, legal, accounting and operations departments are responsible for and should manage their costs. Cost centres usually have cost budgets which can easily be added to Augtool. 

The main purpose of a cost centre is to track and manage expenses across multiple expense accounts on a profit centre income statement.  

An income centre is a department or function of a company that directly adds or should add to the income of the company and may be related to one or more chart of accounts. 

The main purpose of an income centre is to track and manage income across multiple income accounts on the income statement. 

You can manage your income or costs on your income statement but should you want to segment your income or costs on your income statement further, without creating many income and expense chart of accounts then you can create cost and income centres. For example, you could have one sales account on your income statement but have multiple income centres that can be reported on. In this way, you can simplify your income statement but still have access to management reporting around income. The same is true for cost centres. 

Both the ledger and centres are not linked to any items, sales person, buyers, and customers and suppliers on business documents. Line item reporting is done with the business reporting. A ledger and a cost and income centre do not have any idea of the item that created it.  

A Profit centre is a department or function of a company that directly adds or should add to the profit of the company. It is treated as a stand alone business within the company and is responsible for managing its income and expenses. Profit centres groups income and cost centres (functions within itself) to manage profits, into reporting groups. Profit centres have to belong to one business unit as they cannot access bank accounts from another business unit. Should you need to manage departments with their own bank accounts, you will need to separate them with a business unit. 

Centres are flagged as a Cost or Income Centres and grouped into Centre Groups. Once created, the system automatically creates a tag and links it to the centre. The tag is used to pass the name of the Cost Centre through to the General Ledger for further reporting on the financials. In this way, you will have the information of the centres on your financials and you will have access to management reporting via centres. 

Centres flagged as Income Centres are used on the sales side in Quotes, Sales Orders, Invoices, and Credit Notes.

Centres flagged as Cost Centres are used on the purchase side in Purchase Orders, Purchase Invoices and Debit Notes.

Please let us know what reporting you would like based of the use of your centres and we will gladly create them for you