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Profit Center Management

Evaluate the income, cost of sales, and expenses for a segment of your company.

Profit Centers & Departments are used to help management print profit reports and other necessary information in a logical format, focusing on a specific department of the business.

Departments

Departments are an extension to the general ledger account numbers. They are three digit codes used to designate different departments, divisions, locations, or product lines of a company. Departments are a powerful way to analyze the profitability of a specific segment of the company.

A department is a separate activity or product line within a company. A department is coded within the general ledger chart of accounts by the 3-digit extension to the main 5-digit account code.

Profit Centers

A profit center can consist of a group of one or more departments that are grouped together for financial summaries such as profit and loss and balance statements.

Financial Statements

The system facilitates separate Profit & Loss statements for individual departments or Profit Centers as well as other financial statements.

Reporting

Overhead Costs

Overhead costs can be posted to a single general ledger account and then allocated to individual profit centers based on a monthly or annual percentage. The percentage distribution is dynamic and can be entered on a monthly or annual basis. For example, multiple profit centers may share a common building and the building costs such as maintenance, utilities and insurances. These costs are then distributed to the individual profit centers based on the percent of space used within the building.

Use Cases

Following are some examples of how departments and Profit Centers may be used:

Lawn & GardenHardware Store
A hardware store may divide the store in the following departments:

• Tools
• Sporting equipment
• Lawn & Garden
• Automotive
• Hardware
• Building supplies, etc

The manager may identify each department as a separate profit center or he may combine a few of the departments together into a common profit center that is managed by the same person. A possible advantage of creating departments for this storeowner would be to determine which departments are the most profitable within his operation.

Farm Equipment DealerFarm Equipment Dealer
A farm equipment dealer may want to create the following departments:

• Farm tractor sales
• Farm tractor service
• Harvesting & cultivating equipment sales
• Harvesting & cultivating equipment service
• Lawn and garden equipment sales
• Lawn and garden equipment service

With the following Profit Centers:

• Sales Profit Center which includes all the sales departments
• Service Profit Center which includes all the service departments

Lawn & GardenMultiple Locations & Multiple Departments
Another possible use for Profit Centers would be to identify locations for companies with multiple locations as well as multiple departments within each location. A hardware storeowner may own more than one store with the departments listed in our first example.

Profit Centers can also identify entire divisions within companies, such as:

• Manufacturing division
• Service division
• Sales division

Non-ProfitMinistry & Non-Profit
Departments could be identified as fund groups within a ministry or non-profit organization. The system allows multiple funds within the capital folder (Fund folder) and a means of separating costs or revenue by funds.

Should My Company Use Department & Profit Centers?

Do you wish to determine which department within your company is profitable? Review the questions in the Should my company use Department & Profit Centers?

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