2015-11-05 11:25:10 +00:00
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Your Chart of Accounts is mainly designed to provide reports to the government
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and tax authorities. Most businesses have multiple activities like different
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product lines, market segments, areas of business, etc that share some common
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overheads. They should ideally have their own structure to report, whether they
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are profitable or not. For this purpose, there is an alternate structure,
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called the Chart of Cost Centers.
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### Cost Center
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You can create a tree of Cost Centers to represent your business better. Each
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Income / Expense entry is also tagged against a Cost Center.
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For example, if you have two types of sales:
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* Walk-in Sales
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* Online Sales
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You may not have shipping expenses for your walk-in customers, and no shop-
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rent for your online customers. If you want to get the profitability of each
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of these separately, you should create the two as Cost Centers and mark all
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sales as either "Walk-in" or "Online". Mark your all your purchases in the
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same way.
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Thus when you do your analysis you get a better understanding as to which side
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of your business is doing better. Since ERPNext has an option to add multiple
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Companies, you can create Cost Centers for each Company and manage it
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separately.
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Chart of Cost Centers
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To setup your Chart of Cost Centers go to:
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> Accounts > Setup > Chart of Cost Centers
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2015-11-06 10:13:32 +00:00
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![Chart of Cost Center]({{url_prefix}}/assets/old_images/erpnext/chart-of-cost-centers.png)
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2015-11-05 11:25:10 +00:00
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Cost centers help you in one more activity, budgeting.
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### Budgeting
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ERPNext will help you set and manage budgets on your Cost Centers. This is
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useful when, for example, you are doing online sales. You have a budget for
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search ads, and you want ERPNext to stop or warn you from over spending, based
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on that budget.
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Budgets are also great for planning purposes. When you are making plans for
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the next financial year, you would typically target a revenue based on which
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you would set your expenses. Setting a budget will ensure that your expenses
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do not get out of hand, at any point, as per your plans.
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You can define it in the Cost Center. If you have seasonal sales you can also
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define a budget distribution that the budget will follow.
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> Accounts > Setup > Budget Distribution > New Budget Distribution
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2015-11-06 10:13:32 +00:00
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![Budget Distribution]({{url_prefix}}/assets/old_images/erpnext/budgeting.png)
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2015-11-05 11:25:10 +00:00
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#### Budget Actions
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ERPNext allows you to either:
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* Stop.
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* Warn or,
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* Ignore
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if you exceed budgets.
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These can be defined from the Company record.
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Even if you choose to “ignore” budget overruns, you will get a wealth of
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information from the “Budget vs Actual” variance report.
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> Note: When you set a budget, it has to be set as per Account under the Cost
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Center. For example if you have a Cost Center “Online Sales”, you can restrict
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“Advertising Budget” by creating a row with that Account and defining the
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amount.
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{next}
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