What is a cost center (cost centre)?

A cost center is an organisational unit a company defines to track expenses and assign responsibility for them. It is not expected to earn revenue directly; its purpose is to show in which part of the company a cost arises and who is accountable for it. Support units such as accounting, IT and human resources are typical cost centers. The term is spelled "cost centre" in British English.

What is a cost center used for?

A cost center makes it visible where an expense arises and ties each expense item to a responsible person. Management then sees total spend not as one figure but spread across units. Budgets are given per cost center, and actual costs are compared with that budget.

Typical uses of a cost center are:

• Budgeting: giving each unit a period spending ceiling.
• Accountability: the unit manager answers for their own costs.
• Allocation: shared costs such as rent or software licences are split across units.
• Reporting: tracking costs by unit from period to period.

Cost center, department, project code and profit center compared

These four concepts describe where a cost is attached from different angles. A department is a unit on the organisation chart. A cost center is the cost unit in accounting and may overlap with a department but need not be identical. A project code tracks the cost of a time-limited job. A profit center carries revenue and cost together.

How is a cost center used for travel expenses?

A travel expense is mostly charged to the cost center of the traveler's own unit. But if a salesperson travels for a client project, the company may want the cost passed on to a project code or another unit. This rule depends on the company's accounting policy and should be written into the travel policy.

Companies that want to use cost centers in travel management should answer these questions: will the cost center come from the traveler's profile or be chosen at booking? Can a trip be split across several cost centers? What happens when the cost center's budget is exceeded? How to build the budget structure is covered in the corporate travel budget template.

Example: a sales team's travel expense

Say a company's sales department is split into two cost centers: domestic sales and export. Both teams report to the same department manager but their budgets are separate. A trade show trip abroad by an export employee is charged to the export cost center, while a trip to visit a domestic client by another employee is charged to the domestic sales cost center.

If the same employee supports another unit's project for a period, the company may want to pass this trip's cost to the unit that runs the project. The example shows that the department alone does not always say where a cost should be charged, and that the cost center rule has to be defined clearly in the travel policy.

Is a cost center the same as expense management?

No. A cost center is the unit a cost is attached to. Expense management is the process of collecting, approving and reimbursing the spend an employee makes (meals, taxis, receipts). An expense management system can link costs to cost centers, but the two concepts are different. The difference between travel management and expense management is covered in this article.

Cost centers in Kurumsal.pro

In the Kurumsal.pro portal that your agency offers its corporate clients, there is no cost center field and no cost center report; there is no project or project code concept either. Part of the need for a cost center is met by the portal's organisation structure:

• Reports are produced by product, unit (company and branch), department and person; cost analysis by department is possible.
• Budgets are defined for a department, company or branch and tracked with commitment logic; details are in budget commitment.
• Reports are exported as Excel, CSV and PDF; a company can do its own cost center matching in its accounting with this data.

For budget definitions see travel budget control, and for report breakdowns see corporate travel reporting.