Why and When to use Business Area

Can any body tell me why we want to use business area and where it is going to be used, as I know it helps in consolidation and still more?

CG.Gopinath

Business Areas in SAP are used to differentiate transactions originating from different points/lines/locations in business. Let me give some examples to elucidiate:-

A company (say, ABC) is a huge company and has a variety of businesses under it. Let us say that it typically operates in 3 different domains like machinery manufacturing, trading and assembling of machine parts. 

There are 2 options here now -
1. Either create different company codes for the 3 business operations (which would be the easiest and require no creativity)

or 

2.) Create each of these business lines into business areas (the better option). 
The advantages of using the second option is:
1. You can use these business areas if other company codes require the same areas
2. The configuration is simpler as in case of company code, you would require to go through the entire configuration of creating Chart of Accounts, Fiscal Year variants, posting periods variants and so on. In the business area option, you just need to attach it to the company code and the rest of the details in Business area is attached by default from the company code you are using it in. 

3. Using the options in controlling (EC-PCA, Enterprise Controlling, Profit Centre Accounting), you can even draw up Balance Sheets and PL statements for your business areas and hence this is used for management accounting in some companies (like HP, Dell, etc) when it wants to know the operating profits for different business areas/lines.

The above was an example when the company wanted to separate entries according to the lines it operates in... the other case could be when it wants to find out profitability during its operations in cities and differentiates these cities into Business
Areas...

Business Areas are not much relevant in FI but are much more relevant in CO.

Hope this clears.

Jacob Joseph

You have given a very good example for Business Area.  I have questions.

If I want the B/s and P&L Account for Business Area wise, I can take it. But, How about those transactions which are not assigned any business area during the document entry.

Kotni

Let me first be sure of what you are asking.  Is it:

1) You want the B/S and P/L statements of transactions carried out in areas other than the business areas defined by you? or

2) You only want to view the transactions that were not carried out in any business area?

Whatever were your doubts, let me clarify.

If your doubt was the first one, then, in that case, the financial statements will not be available.  There are reasons for the same. All transactions in FI pass through G/L accounts. The data in FI is then passed to CO through  primary cost elements.
According to the settings that you have configured for your controlling area and operating concern, the costs are distributed to the various cost centers (Cost Center Accounting & CO-PA). The costs are then apportioned to the various cost centers (which may or may not be a part of your business areas or may be independent cost centers). Now, with this data, financial statements of the business area are drawn up. For transactions not part of business area, they are transferred to independent cost centers (e.g. like Head Office Salaries, HR, etc) and hence, cannot be drawn up as a financial statement but just as line item displays in your reconciliation ledger (if you have activated it in the CO-OM-CEL {Cost Element Accounting})

[The answer to your second  doubt, I hope]. 

Financial statements of Business areas are unbalanced because not always does the debit and credit entries of a transaction lie in the same business area/cost center; but for cost accounting purposes, they are reasonably sufficient.

I hope this clears.

Jacob Joseph

Thank you for the reply. I understand I need to give more clearly about my doubt. 

I want to configure FI and other modules and there is no CO or operating concern. But I want Balance sheet and Profit and Loss Account for each of the business area.

As you aware, the business area can be defined above or below company code level.

Is it possible to get what I want.

Kotni Ravi Kumar

In order to generate BS and P&L at business area level you should carry out the following:

1. You should have activated " Enable BA balance sheet" under enter global parametets in FA global settings.

2. You should do configuration under the transaction code "OBXM"

3. You also have run the transaction codes f.50 for P&L and 5.d & 5.e for Balance sheet readjustment.

System automatically posts the taxes and reconciliation accounts of NIL BA transactions to BA and tally the trial balance of all B. areas 

Yerra Rao

Your explanations were excellent and precise, but I have a quick question why would one use business area against a profit center as business area data is never precise and getting a balance sheet report via business area is not recommended. Profit center would be better just a doubt please clarify

Sabarinathan Swaminathan 

Why would I use business area against a profit center?" is a very pertinent one and conceptually necessary. Let me explain to you what a profit center exactly means, both in SAP terminology and in management accounting. 

In management accounting, a profit center is an area or department from where the management wants to find out the return on investment or ROI, as the accountants know it. The concept in SAP is similar as it is used by management to find out the ROI. On the other hand, business areas are just segregation of business transaction origins. So, a certain business area can have more than one profit center within it. Both have their unique uses and both have their unique features. 

Using the above understanding, you can easily work out where you would use business centers and where you would use profit centers. 

Hope this clears,

Jacob Joseph

Thanks for the explanation its good thanks

Sabarinathan Swaminathan 

Creating and Maintain SAP Business Area

You can set up several business areas for each client so that the system can assign the postings made in all company codes defined in this client. 

To ensure consistency in document entry, you should give business areas the same name in all company codes.

Goto transaction SM30 and specify the view V_TGSB

To maintain to business area click the Maintain button.

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