Cost Elements in SAP – Know the Types and How to Create it – An informative Guide

What Cost Elements in SAP?

Cost Elements in the SAP system create a link between Finance posting with Cost Object like Cost Center, Order, Profitability Segment, etc.

In this blog, we will learn how to create Cost Elements in SAP and differentiate between the various cost element types to use them correctly.

Although Cost Element Accounting does not offer much functionality. Still, an organization must implement it for its business in order to use all the other Controlling Subcomponents.

Master Data Cost Elements

A key aspect of the Cost element is Master Data Cost Element. Here we create primary and secondary cost elements.

At the beginning of Cost Element Accounting, we first learn how to create cost elements. Further, we would discuss the difference between the cost element types and categories.

Primary and Secondary Cost Elements in SAP

Cost elements are separated into primary cost elements and secondary cost elements. Since both have their own use and importance in SAP Controlling. Thus, you should understand both of them carefully.

Primary Cost Elements

Primary cost elements are created based on expense accounts. They always have the same number as the expense account. In other words, there is a 1:1 relationship between the expense account and primary cost elements.

In SAP ERP Financial Accounting on expense accounts, we will post all the entries in Controlling on the primary cost elements.

To clarify, if a cost element exists for this expense account, we must first create it as a primary cost element so that it can reflect the postings in the controlling module.

Read Related: Interview Questions to Primary Cost Elements

Secondary Cost Elements

Secondary cost elements are created in controlling and are used for all activities that are executed in controlling.

Certainly, these Secondary Cost elements do not cause any change in any values in the Financial Accounting module.

Importantly, the balance of the secondary cost element is always zero. For example, it includes cost allocations, order settlements, and so on.

Lastly, for the secondary cost element, no General Ledger exists.

Cost Elements Categories – Primary and Secondary

We categorize the cost element by a cost element category. There are different cost element categories for primary and secondary cost elements.

Below is a list of cost element categories available for Primary and Secondary Cost Elements.

Category	Primary Cost Elements
01	Primary costs/reducing revenues
03	Accrual/deferral per surcharge
04	Accrual/deferral per debit actual
11	Revenues
12	Sales Deduction
22	External Settlement

Category	Secondary Cost Elements
21	Internal Settlement
31	Order/project results analysis
41	Overhead Rates
42	Assessment
43	Internal Activity allocation

It’s essential to assign the correct cost element category to the cost elements. Hence it guarantees an integrated value chain with correct results in Controlling SAP.

Create Primary Cost Element – KA01

Create Secondary Cost Element – KA06

Also Read:- Changes in SAP Controlling in S/4HANA

Also learn: The concept of Cost Object Controlling in SAP

Creation of Cost Elements in SAP

Depending on your process for the master data creation, you can decide whether you want to create cost elements manually or automatically.

Manual Creation of Cost Elements in SAP

If we create the cost elements manually, we need to define a process. In this process, the person who creates the expense accounts informs you about the new account before executing any posting. Otherwise, you won’t be able to see this posting in SAP Controlling.

Automatic Creation of Cost Elements in SAP

If you want to create cost elements automatically, you need to do some configuration.

So here, the first setting that we do is in the Chart of Accounts.

Further, we need to indicate those cost elements which the system creates automatically.

Use Transaction Code (TCode) – OB13

Steps to Create Cost Elements Automatically

Next IMG => Controlling => Cost Element Accounting => Master data => Cost Elements => Automatic Creation of Primary and Secondary Cost Elements => Make Default Settings

Further, we will make the default settings via the chart of accounts, which is assigned to your controlling area.

From now on, the cost element will be created automatically with the assigned cost element category. This is when we create a General Ledger account in the range of intervals.

Creation of Batch Job

SAP also enables you to create cost elements with a batch job, which means you also have to maintain the default settings.

You can enter intervals or single expense General ledger accounts. Likewise, you can enter account numbers that don’t exist as General ledger accounts and create them as secondary cost elements.

However, for this, you need to assign a cost element category for the secondary cost element category for the cost element.

Cost Elements Batch Input Session Creation TCode for – OKB3

Related: Cost Center in SAP

Cost Element Groups

You can place cost elements into cost element groups. These groups are often used in reporting to define assessment cycles, settlement profiles many more.

I recommend that you use cost element groups as much as possible in the configuration. Because in this way you can easily adjust the settings at this time, such as changing the cost element groups.

Cost Elements Groups TCode – KAH1

Reporting Options

Reporting options for Cost Element Accounting are quite limited within standard SAP. This is because we require them only for reconciliation purposes.

Cost Element Report TCode – S_SL0_21000007

Also Read: SAP CO Interview Questions

EndNote

With this article, you understood the key uses of cost elements and where and how we utilize them in the SAP ERP system of a business.

The components of cost elements i.e. primary and secondary play a key role in its functioning of it and their categorization makes the job of the SAP consultant easier.

The cost elements also play a similarly important role in the SAP S/4HANA version too. It adds even more features and functionalities with the enhanced software.

However I advise if you are new to this subject, then first learn the Cost element in SAP ECC thoroughly and then upgrade further to S/4HANA Finance.

Watch the Related Video on: Cost Element Accounting in SAP FICO