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Use of Functional Areas in SAP

Updated May 18, 2018

Functional areas are used to segregate expenses by functions (eg. production and R&D, etc.) instead of showing as lump sum on the P&L statement. Functional areas basically help to create `cost of sales` reporting which is used only in certain countries, like USA.

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  • 28 Dec 2010 6:15 am rekha Best Answer

    Functional Area

    To sort expenses according to corporate functions, the system derives the functional area for the following postings:

    Primary postings (postings in Financial Accounting) to a profit and loss account

    Secondary postings (allocations in Controlling)

    The functional area is derived for both objects involved in the allocation.

    In the following cases, no functional area is derived:

    Postings to balance sheet accounts

    Entry of statistical key figures in Controlling

    To enable the system to derive the functional area for a posting, cost of sales accounting must be active for the company code in which the posting is performed. 

    The system derives the functional area during document entry based on the information in the coding block. The functional area appears on the entry screen. It is derived as follows:

    1.From the master records of the assigned objects

    If an object is assigned during a posting, the system checks whether a functional area has been entered in the master record of the object. The system retains this functional area provisionally.

    2.From the master record of the G/L account or the cost element

    The system checks whether a functional area is entered in the master record of the cost element or the profit and loss account. This functional area overwrites the functional area derived from the assigned object.

    Please correct me if i m wrong

  • 28 Dec 2010 6:13 am rekha Helpful Answer

    An organizational unit in Accounting that classifies the expenses of an organization by functions such as:

    Sales and distribution
    Research and development
    Classification takes place to meet the needs of cost-of-sales accounting.

    With Regards,
  • 18 Feb 2011 11:07 am rekha Helpful Answer
    We may have different functions involved to complete the business cycle of a product or services or for that matter, from simple receiving to shipping and the management might be interested to segregate the operational cost of each of these functions. The examples could be administration, production, packing, shipping, R&D, Inventory Carrying etc. The objective is to control the overheads by concentrating on the area where the cost is more or comparatively increasing from the previous periods. In SAP, we can define or create each of these functional areas and assign them to G/L expense accounts and thus Cost Elements, in order to post cost to each of these areas. Functional areas are part of Cost of Sales Accounting; hence COSA needs to be activated for Functional Area to work. For more specific information, a P&L statement is also possible for COSA. Functional Area is different from Business Area or Profit Center as they are bigger entities and may contain many FAs under them as they may belong to a business line or a full fledge business unit i.e. TATA may have manufacturing of cars, trucks, buses and steels as different business areas or a bank have Retails and Mortgage Loans as two different BAs or PCs.

    Note: SAP is likely to do away with business areas in future. Therefore Profit Center Accounting will be handling all such functionalities as there have been continuing confusions between these two among the clients.