Profit Center Accounting

Definition

"Profit Center Accounting" lets you calculate internal operating results for units of your company (profit centers) using either the period accounting or cost-of-sales method. By assigning invested capital, you can extend profit centers to investment centers. How you divide the company into profit centers forms the basis for the control of internal areas of accountability and thus also for the delegation of responsibility to decentralized units. Profit centers are typically defined on the basis of products (product lines, divisions), regions (plants, business locations) or functions (production, sales).

Selection criteria

If you want to analyze period results for the organizational units of your company and use this information to evaluate the profitability of those units’ activities, you should use Profit Center Accounting. The persons in charge of the profit centers operate more or less as independent entrepreneurs, which can also provide motivation because the individual areas are profit-oriented.