Cost Centres and Categories
Division-wise expense tracking for Sunrise Retail — Retail (Madhapur showroom) vs Wholesale (Kondapur) using Tally cost centres
Module 20 of 31 — Tally Prime. Cost centres — track which division or department incurs each expense. Sunrise Retail's Retail (Madhapur) vs Wholesale (Kondapur) division setup. Duration: 35 min.
Prerequisites: Module 07 — Payment and Receipt Vouchers
Learning Objectives
- Understand cost centres and why they are distinct from ledger accounts
- Enable cost centres in Tally Prime via F11
- Create Sunrise Retail's two business divisions as cost centres
- Allocate expenses to cost centres in payment vouchers
- View division-wise expense reports for management decisions
What Are Cost Centres?
A Cost Centre adds a second dimension to expense tracking. Instead of just knowing you spent ₹1,50,000 on salaries (the ledger tells you this), you also know exactly which part of the business incurred that salary cost.
Without cost centres:
With cost centres:
Cost centres work alongside ledgers — they don't change the financial totals, they provide analytical depth.
Sunrise Retail — Two Business Divisions
Sunrise Retail Pvt Ltd operates two distinct business divisions:
| Division | Cost Centre Name | Location | Nature |
|---|---|---|---|
| Retail | Retail — Madhapur | Main Showroom, Madhapur | Walk-in sales, consumer retail |
| Wholesale | Wholesale — Kondapur | Stock Godown + distribution | Bulk supply to dealers and institutions |
Why this matters for Kiran (director): The Madhapur retail showroom has high footfall costs (rent, display, sales staff) but higher margins per unit. The Kondapur wholesale division has lower overheads but moves more volume. Cost centres let Kiran see which division is actually profitable.
Enable Cost Centres
Creating Cost Centres
Division 1 — Retail:
Division 2 — Wholesale:
You can create sub-cost centres under each division if needed. For example, under "Retail — Madhapur" you could have "Display Floor" and "Service Desk". For most businesses, top-level divisions are sufficient. Start simple.
Cost Centre Allocation in Vouchers
When recording an expense, Tally prompts for cost centre allocation if the ledger is set up for it.
Enabling cost centres on a ledger:
Do this for all P&L expense ledgers you want to track by division: Salaries, Rent, Electricity, Marketing, etc.
April 30 Salary Payment — With Division Allocation
Sunrise Retail's April salaries total ₹1,50,000 across both divisions:
| Employee | Role | Division | Salary |
|---|---|---|---|
| Kiran (Director) | Management | Split 50/50 | ₹40,000 |
| Sneha | Accounts & Admin | Split 60/40 | ₹35,000 |
| Ravi | Retail sales | Retail 100% | ₹25,000 |
| Priya | Wholesale coordinator | Wholesale 100% | ₹30,000 |
| Suresh | Store helper | Retail 100% | ₹20,000 |
Division allocation:
- Retail — Madhapur: Kiran ₹20,000 + Sneha ₹21,000 + Ravi ₹25,000 + Suresh ₹20,000 = ₹86,000
- Wholesale — Kondapur: Kiran ₹20,000 + Sneha ₹14,000 + Priya ₹30,000 = ₹64,000
Tally entry — F5 (Payment):
The total of all cost centre allocations must equal the ledger amount. Tally validates this — if the amounts don't add up, it won't accept the entry. This prevents partial allocations.
April Rent Payment — With Division Allocation
Monthly rent: ₹30,000 (for Madhapur showroom premises — wholesale godown at Kondapur is owned).
April Advertising Payment — With Division Allocation
Kiran spends ₹12,000 on marketing in April: ₹8,000 on social media ads for the retail showroom, ₹4,000 on WhatsApp catalogue marketing for wholesale clients.
Cost Centre Report — Division-Wise View
After all April entries with cost centre allocations:
ASCII — Cost Centre Report
Kiran's takeaway: Retail division costs ₹1,28,500 in April; Wholesale costs ₹74,200. Compared to the respective sales figures, this gives division-wise profitability.
Cost Centre vs Godown — Important Distinction
| Feature | Cost Centre | Godown |
|---|---|---|
| Purpose | Track WHERE expenses are incurred | Track WHERE stock is stored |
| Appears in | P&L analysis, expense reports | Inventory reports, stock summary |
| Examples | Retail division, Wholesale division | Main Showroom, Stock Godown |
| Affects | Expense ledger analysis | Stock balance and valuation |
| In Tally | Under Accounts Info | Under Inventory Info |
Sunrise Retail has both:
- Godowns: Main Showroom (Madhapur) + Stock Godown (Kondapur) — for stock tracking
- Cost Centres: Retail — Madhapur + Wholesale — Kondapur — for expense analysis
A phone sitting at "Main Showroom" godown generates sales for "Retail — Madhapur" cost centre. These are complementary, not duplicate.
Practice Exercise
Exercise: Kiran approves ₹5,000 Facebook ad spend targeting the Madhapur showroom's walk-in customers. Record the payment with cost centre allocation.
Show Solution
In the Cost Centre report, Retail — Madhapur now shows ₹5,000 in Marketing & Advertising. P&L shows Marketing & Advertising total unchanged — only the analytical dimension (which division spent it) is added.
Key Terms
| Term | Meaning |
|---|---|
| Cost Centre | A dimension for tracking expenses by division, department, project, or location |
| Cost Category | A grouping of cost centres — e.g., "Divisions" containing Retail and Wholesale |
| Cost Centre Allocation | The amount from an expense entry assigned to each cost centre |
| Cost Centre Report | Shows expenses by division/department — management analysis tool |
| Primary Cost Centre | Top-level cost centre — all others are created under it |
| "Cost Centres Applicable" | A flag on each P&L ledger — activates the allocation popup in vouchers |
Module Summary
- Cost centres add a "which division/department" dimension to expense entries — complementing ledger totals
- Sunrise Retail's two divisions: Retail — Madhapur (showroom walk-in sales) and Wholesale — Kondapur (dealer/bulk distribution)
- Enable:
F11 → Accounting Features → Maintain Cost Centres: Yes - Set "Cost Centres Are Applicable: Yes" on each expense ledger you want to track
- Allocation popup appears in F5 (Payment) for those ledgers — enter division amounts that must total the expense
- Cost Centre Report:
Reports → Statements of Accounts → Cost Centres— April: Retail ₹1,28,500, Wholesale ₹74,200
Checklist before moving on:
- F11 → Maintain Cost Centres: Yes
- Two cost centres created: Retail — Madhapur and Wholesale — Kondapur
- Salaries, Rent, Marketing ledgers: Cost Centres Are Applicable = Yes
- April salary F5 entry with division split (₹86,000 + ₹64,000 = ₹1,50,000)
- Cost Centre Report checked — correct totals per division
Quick Quiz
1. Cost Centres in Tally are used to:
- a) Create additional bank accounts
- b) Track expenses by division, department, or project
- c) Manage stock in multiple godowns
- d) Apply different GST rates by location
Answer
b) Track expenses by division or project — cost centres add an analytical dimension beyond ledger totals to show where within the business money was spent. They do not affect stock (that's godowns) or GST.
2. After allocating April salary (₹1,50,000) split as Retail ₹86,000 and Wholesale ₹64,000, the P&L shows:
- a) Two separate salary lines — ₹86,000 and ₹64,000
- b) Salaries ₹1,50,000 (full amount) in P&L; the split appears in Cost Centre report only
- c) Only the Cost Centre report shows ₹1,50,000
- d) Salaries ₹1,50,000 in P&L and also ₹1,50,000 again in Cost Centre report (double count)
Answer
b) P&L shows Salaries ₹1,50,000 as usual — cost centre allocation doesn't change the financial totals. The division split (₹86,000 / ₹64,000) appears only in the Cost Centre report. No double counting.
3. Which F11 feature enables cost centres in Tally Prime?
- a) Enable Inventory Features
- b) Maintain Cost Centres (under Accounting Features)
- c) Activate Interest Calculation
- d) Use Multiple Godowns
Answer
b) Maintain Cost Centres — in F11 → Accounting Features (not Inventory Features). Cost centres are an accounting/management reporting feature, not an inventory feature.
4. What is the difference between a Godown and a Cost Centre for Sunrise Retail?
- a) They are the same — both track location-based data
- b) Godown tracks where stock is physically stored; Cost Centre tracks where expenses are incurred
- c) Godown is for sales; Cost Centre is for purchases
- d) Godowns are mandatory; Cost Centres are optional for all companies
Answer
b) Godown = stock location (Main Showroom, Stock Godown); Cost Centre = expense accountability dimension (Retail division, Wholesale division). They operate independently and can coexist — Main Showroom godown generates costs under Retail division cost centre.