Cost Centre
A Cost Centre is a part of a business where costs or income can be tracked. It helps keep track of how well or how much money certain areas, like departments, projects, sales channels, or locations, are making.
A Cost Centre in ERPNext can also be a Profit Centre, which lets you see which parts of your business are making money and which are losing money.
1. Why do you need cost centres?
The main purpose of your Chart of Accounts is to report to the government (like the IRS), but it may not give you a lot of information about how your business works.
Most companies sell more than one type of product, work in more than one area, or offer more than one service. Cost Centers allow you to track income and expenses separately for each activity. This helps you figure out which parts are doing well and where you need to cut costs.
For example: You could set up separate Cost Centres for Walk-in Sales and Online Sales to see how much money each channel makes. Online sales might have to pay for delivery, while walk-in sales might have to pay for rent.
2. Where can you use cost centres?
You can assign Cost Centres at different levels:
Business
Item
Order or Invoice for Sale or Purchase
You can also tag them in a lot of transactions, like:
They are also used for making budgets and reports.
3. The Cost Centre Tree (Chart of Cost Centres)
You can create a tree of Cost Centers to represent your business better. Each Income / Expense entry is also tagged against a Cost Center. If 'Allow Cost Center In Entry of Balance Sheet Account' is checked under Account Settings, the system will allow a User to tag entry in Balance Sheet Accounts against a Cost Center.
For example, if you have two types of sales:
Walk-in Sales
Online Sales
You may not have shipping expenses for your walk-in customers, and no shop- rent for your online customers. If you want to get the profitability of each of these separately, you should create the two as Cost Centers and mark all sales with either "Walk-in" or "Online" Cost Center. Mark all your purchases in the same way.
Thus when you do your analysis you get a better understanding as to which side of your business is doing better. Since ERPNext has an option to add multiple Companies, you can create Cost Centers for each Company and manage them separately.
You can set up Cost Centres in a tree structure that shows how your business is set up.
To access it, go to:
There can be child nodes for each cost centre. For instance, Every income or expense entry is linked to the right Cost Centre. You can even tag Balance Sheet entries (like assets or liabilities) to Cost Centres if you check the box next to "Allow Cost Centre In Entry of Balance Sheet Account" in Account Settings.
4. How to Make the Cost Centre Chart
To make a Chart of Cost Centres:
The Chart of Cost Centres is where you should go.
Add nodes based on how you want to report (for example, by region, department, or business activity).
Make parent and child nodes to group things better.