Cost Accounting in Business Central is a separate module that sits alongside the general ledger and provides a dedicated structure for internal cost analysis. It uses its own hierarchy of cost types, cost centers, and cost objects, independent from the G/L chart of accounts, which makes it suited to organizations that want detailed internal reporting beyond what dimensions alone provide.
This module is optional. Many Business Central implementations rely on dimensions for cost reporting and skip Cost Accounting entirely. If your organization already uses dimensions effectively for department or project reporting, evaluate whether the added complexity of this module is justified before setting it up.
How Cost Accounting Differs from Dimensions
With dimensions, you tag G/L entries with values like department or project, then filter reports by those values. The data lives in the general ledger.
Cost Accounting moves amounts into a separate cost ledger with its own account structure. This allows allocations, distributions, and cost flow analysis that are not easily done through dimension filtering alone. The tradeoff is additional setup and maintenance.
Step 1: Configure Cost Accounting Setup
- Search for Cost Accounting Setup using
Alt + Q. - Review the key fields:
| Field | Purpose |
|---|---|
| Starting Date for G/L Transfer | Entries before this date are excluded from G/L transfers to cost accounting |
| Alignment G/L Account | The G/L account used to balance cost accounting entries when needed |
| Auto Transfer from G/L | If enabled, G/L entries are transferred to cost accounting automatically on posting |
| Cost Journal Template Name | The journal template used for manual cost entries |
- Set Starting Date for G/L Transfer to the beginning of the period from which you want to start tracking costs.
- If you want G/L entries to flow into cost accounting automatically, enable Auto Transfer from G/L. Otherwise, you will run the transfer manually.
Step 2: Define Cost Types
Cost types are the cost accounting equivalent of G/L accounts. Each cost type is linked to one or more G/L accounts, and entries posted to those G/L accounts are transferred into the corresponding cost type.
- Search for Chart of Cost Types using
Alt + Q. - Select Get Cost Types from Chart of Accounts from the action bar to auto-generate cost types based on your G/L accounts.
- Review the generated cost types. Remove or consolidate any that are not relevant to cost reporting.
- For each cost type you want to use, confirm the G/L Account Range field maps to the correct G/L accounts.
Cost types can also be structured into groups using the Totaling type, similar to how G/L accounts use totaling rows in the chart of accounts.
To add a cost type manually:
- Select New on the Chart of Cost Types page.
- Set Type to Cost Type (for posting) or Total (for summing).
- Enter the G/L Account Range for posting-type cost types.
Step 3: Define Cost Centers
Cost centers represent the organizational units that incur costs, departments, locations, or business units.
- Search for Chart of Cost Centers using
Alt + Q. - Select New to create a cost center.
- Enter a Code and Name for each cost center (for example,
SALES,IT,ADMIN). - Set the Line Type to Cost Center for actual posting centers, or Total for summary rows.
If you use dimensions, you can link a cost center to a dimension value. This means G/L entries tagged with that dimension value are automatically assigned to the corresponding cost center during transfer.
To set up the link:
- Search for Cost Accounting Setup and confirm the Cost Center Dimension field points to the correct dimension (for example, Department).
Step 4: Define Cost Objects
Cost objects represent what the costs are being incurred for, products, projects, customers, or any other output category.
- Search for Chart of Cost Objects using
Alt + Q. - Select New and create cost objects in the same way as cost centers.
- In Cost Accounting Setup, confirm the Cost Object Dimension field is set to the dimension you want to use as cost objects (for example, Project or Item).
Cost objects are optional. Some setups use only cost centers. Use cost objects when you need to see costs broken down by a second axis, for example, by both department and product line.
Step 5: Transfer G/L Entries to Cost Accounting
If Auto Transfer from G/L is not enabled, you transfer entries manually at the end of each period.
- Search for Transfer GL Entries to CA using
Alt + Q. - Set the Starting Date and Ending Date to cover the period you want to transfer.
- Select OK to run the transfer.
The transfer creates cost entries in the cost ledger for all G/L accounts that are linked to a cost type. Entries are assigned to cost centers and cost objects based on the dimension values on the original G/L entries.
After running, verify the transfer by checking Cost Entries (search for Cost Entries using Alt + Q) and confirming the amounts match your G/L for the same period.
Step 6: Set Up Cost Allocations
Cost allocations distribute costs from one cost center (the source) to one or more other cost centers or cost objects (the targets). This is useful for distributing shared costs like IT infrastructure or facilities across the departments that use them.
- Search for Cost Allocation Sources using
Alt + Q. - Select New to create an allocation source.
- Fill in:
| Field | Purpose |
|---|---|
| ID | A unique code for this allocation |
| Valid From / Valid To | Date range for the allocation rule |
| Cost Type Range | The cost types to allocate from |
| Cost Center Code | The source cost center |
| Percent | Leave blank if using targets to define the split |
- On the allocation source, open Targets from the action bar.
- Add target lines defining where costs should go and in what proportion:
| Field | Purpose |
|---|---|
| Target Cost Center | Receiving cost center |
| Target Cost Object | Receiving cost object (if applicable) |
| Allocation % or Static Base | How to calculate the split |
Common allocation bases include fixed percentages, headcount, or floor space. For static bases, enter the values directly on the target lines and Business Central calculates the proportional split.
Step 7: Run Cost Allocations
- Search for Run Cost Allocation using
Alt + Q. - Set the Allocation Level if you use tiered allocations, and specify the date range.
- Select OK to execute.
Business Central posts cost journal entries that move amounts from source cost centers to the target cost centers or cost objects according to the rules defined in Step 6.
Allocations can be run multiple times. If you need to re-run for a period, reverse the previous allocation entries from the Cost Journal before running again.
Step 8: Run Cost Accounting Reports
- Search for Cost Accounting Analysis using
Alt + Qto access the built-in analysis views. - Use Cost Type Statement or configure an Analysis View to compare actual costs across cost centers and cost objects.
- Filter by date, cost center, and cost object to produce the internal reporting your business needs.
For period comparisons, the Budget vs. Actual report in cost accounting uses a separate cost budget. To set one up, search for Cost Budgets using Alt + Q and enter planned amounts by cost type and cost center.
Notes on Implementation
- Cost Accounting adds a parallel ledger that must be maintained alongside the G/L. Consider whether your team has the capacity to manage it.
- If dimensions already give you the cost visibility you need, the Cost Accounting module may add more process overhead than value.
- The module does not affect financial statements, it is purely for internal management reporting.
- Entries already in the G/L before the Starting Date for G/L Transfer will not be pulled into cost accounting unless that date is backdated and the transfer is re-run.
If you are new to Business Central reporting more broadly, the Getting Started guide covers the Role Center and navigation setup relevant to any new user or implementer.