|Cost (also called Profit) centres are organisational or budgetary units. Amounts are allocated to these centres for additional requirements of reporting, budget and control.
First, a simple example: the monthly electricity bill needs to be allotted to three different units in some proportion, while the total wages need to be allotted differently. This is required so you can keep tabs on the expenses for each unit. Tally.ERP 9 lets you manage these three cost centres and also set up budgets for them.
A more 'complex' example: you need to allot an expense to more than one set of cost centres. Let's say you buy vehicle insurance for several vehicles and need to allot these to:
• Different business units which use these vehicles, to record expenses against these units
• The vehicles themselves, to record the monies spent on each vehicle
• The class of uses, to record the amounts against vehicles for people and material movement
The above three become cost categories in Tally.ERP 9, which lets you record all these in the same voucher without the need for additional entries and journals. Maintaining just one accounting ledger – 'Vehicle Insurance A/c' – gives you the ability to monitor expenses by business units, vehicles and class of use.
Often, the proportion of allocation is known in advance. This can be easily set up and applied to a voucher, automatically, and is a big advantage for projects and structured businesses.