Difference between Cost Centers and Internal Orders
A cost center as you will know is for fixed reporting for a long time span as
part of your company structure (cost center usually = department or work
center).
An internal order is used to accumulate cost for a specific project or task
for a specific time period. An internal order is therefore used for a short
period with a specific deadline.
Your internal order will usually settle to cost centers (and not visa versa)
according to the settlement rule in the order setup.
An internal order can therefore be used to group all the expenses incurred to
plan and hold a conference over a 3 month period. The order can be settled on a
monthly basis to cost centers.
When the conference is finished the order can be settled finally. The cost of
the conference will then be spread over 2 or more cost centers, but can be
viewed in total on the internal order when needed.
It is important to understand the difference between a settlement and an
assessment cycle. An assessment cycle distributes costs from one cost center to
various other cost centers. You cannot assess from a cost center to an internal
order nor visa versa. Assessment cycles are only between cost centers.
Settlements are used for orders. In the setup of each order is a "settlement
rule". In this settlement rule you tell the system to which cost centers the
cost in the order must be settled.
Typically, you will execute the following procedure at month-ends:
1. Settle all orders - this will settle all costs on orders to cost centers.
2. Run assessment cycles - Now that you have al costs against cost centers from
your orders, you can start distributing costs between cost centers with
assessments.
Costs are posted to an order. When you process a purchase order you post to
the internal order and not to a cost center. The same applies to journals in FI.
You will post the costs to the order and not to a cost center. You will then
settle the order on month-ends to post to the relevant cost centers. It is very
important to settle these orders otherwise FI and CO will not
balance on your system.
Internal orders can also be used as "statistical" orders. This is also
specified in the setup of the order. You do not have to settle statistical
orders. When posting costs, you will post to the cost center and the order
simultaneously. Both have to be specified when posting journals or purchase
orders against statistical orders.
