what is the Difference Between Profit Centre Accounting and Profitability Analysis

Difference Between Profit Centre Accounting and Profitability Analysis

In simple words:

- Profit Center is particular division,branch/product line for which you want to find out the financial result.
- COPA is more to do with specific business segments like, for a particular product line in a sales area how much is the profit?

Profitability Analysis allows Management the ability to review information with respect to the company’s profit or contribution margin by business segment. Profitability Analysis can be obtained by the following methods:

- Account-Based Analysis which uses an account-based valuation approach. In this analysis, cost and revenue element accounts are used. These accounts can be reconciled with FI (Financial Accounting).

- Cost-Based Analysis uses a costing based valuation approach as defined by the User.

Profit Center Accounting provides visibility of an organization’s profit and losses by profit center. The methods which can be utilized for EC-PCA (Profit Center Accounting) are period accounting or by the cost-of-sales approach.

Profit Centers can be set-up to identify product lines, divisions, geographical regions, offices, production sites or by functions. Profit Centers are used for Internal Control purposes enabling management the ability to review areas of responsibility within their organization.

The difference between a Cost Center and a Profit Center is that the Cost Center represents individual costs incurred during a given period and Profit Centers contain the balances of costs and revenues.