Why should we worry about reconciling costing based Profitability Analysis (CO-PA) to the GL? After all, GL is the book of record from an external reporting stand point. However, CO-PA has several advantages that the GL does not provide. For example, CO-PA can give us details on revenue and cost of sales (COS) split by sales order, product line, customer, etc. as opposed to the GL, which gives us only total revenue and total COS. CO-PA allows us to drill down to the details of a company’s profitability – customer, product line, which can be especially useful when forecasting future sales/COS. Therefore, CO-PA is an important financial tool; however for it to be accurate, we need procedures to reconcile or explain differences between CO-PA and the GL.
For my previous company SPX Genfare it is important to reconcile CO-PA to the GL since we use the CO-PA line item report KE24 to provide monthly actuals data by customer, product type, and contract size that is loaded in our Hyperion Planning forecasting system. In order to have an accurate base for forecasting, we need to have accurate (with non-material difference) historical data.
So, how do we reconcile the CO-PA line item report KE24 to the GL?
1. Include manual journal entries (record type “B”) when running KE24
2. All manual journal entries that include revenue and COS must include profitability fields (sales order, customer) in order to post to CO-PA. More details of the requirements are:
A. Profitability fields for all revenue accounts and manual COS accounts are mandatory
B. Profitability fields for the general COS account are not mandatory since, sometimes, journal entries are recorded to COS but are not related to a specific sales order. These journal entries will be reconciling items between CO-PA and the GL.
3. The above steps minimize the reconciling differences between CO-PA and the GL however they do not eliminate them. There can be timing differences since:
A. CO-PA posts both revenue and COS when an item is invoiced
B. GL posts COS during goods issue, and revenue when an item is invoiced
Run transaction KEAT to display postings to the GL in previous periods, and not yet billed.
4. Remaining reconciling differences between CO-PA and GL result from revenue and COS related to repairs sales orders. Most repair order revenue and COS are not recorded in CO-PA due to the order billing types. We are working on finding ways where they are not a reconciling item.
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