what are a cost center and profit center in tally ERP
a cost center is prepared to allocate expense to a unit similar profit center is prepared to allocate profit to a unit.A cost center is part of an organization to which cost may be charged for accounting purpose.A profit center is a subunit of a company that is responsible for revenues and costs. Often a division of a company is a profit center because it has control over its revenues, costs, and the resulting profits. Cost centers and profit centers are usually associated with planning and control in a decentralized company.
Profit center Advantages
A profit center is liable for providing its own results and income, and as such, its management who generally have decision-making authority related to any product pricing and operating expenses. Profit centers are very important in determining which units are the most and least profitable within a business organization
A cost center and profit center are associated with planning and controlling of the organization.
: suppose XYZ a transport company who purchased two truck one: UK 2356 and truck two 3478
Now his operation cost for two truck is different and now to know the profit or loss from each truck and for expense bear on each truck is different therefore to know the actual profit or loss from each truck and actual expense bear by each truck can be known by preparing cost center and profit center.
Now expense made during the month for truck one is
Diesel used during the month Rs 5000
Salary to driver Rs 7000
Repair and maintenance Rs 2000
Now expense made during the month for truck two is
Diesel used during the month Rs 4000
Salary to driver Rs 7000
Repair and maintenance Rs 1000
Now income received from truck one is Rs 25000 and from truck two is 30,000
now to do the following process in tally cost center and profit center is prepared.
now to set cost center in the tally
- go to the gateway of tally>f11>f1
- set maintain cost center YES
- prepare ledger a/c all expenses such as diesel a/c, salary a/c and repair and maintenance a/c and set cost center are applicable YES
- similarity other expenses ledger are prepared
- and for profit center
- ledger income received from a truck is prepared
Now cost center for trucks need to prepared
- go to the gateway of tally > accounts info> cost center> create. type > truck 1
- and CTRL + A to save
- similar prepare second cost center Truck 2
- now make expense payment during the month
- accounting voucher > F5 payment >select the salary a/c
- now put the salary of both driver as 14000
- cost center allocation screen appear select truck one
- select amount 7000 similarity select truck two amount is automatically filled
- Now profit center need to be prepared
- go accounting voucher > f6 receipt > put amount 55000 select the truck one type 25000 and then select truck two 30000.
Cost summary in Tally ERP
Now go to display to see the report of cost center and profit center.
- Go to gateway of tally> display>statement of accounts >cost center >cost summary
- another way to look cost category report is
- Go to gateway of tally> display>statement of accounts >cost center >cost category break up
- here you can see profit and expenses of each truck separately.