A cost centre is a part of the business you track costs against, such as a department, a site or a team. Finance leads want them for two reasons: to see what each part of the business spends, and to make sure the right person approves that spending.
To track costs by cost centre in Business Central, you do not need a separate module or a separate set of accounts. You set up cost centres as a dimension. If you search for “cost centers”, the American spelling, the advice is the same.
How Business Central handles cost centres
A dimension is a tag that travels with each transaction and says where it belongs. Microsoft Learn’s guide to dimensions uses a Department dimension as its example. The general ledger is your main set of accounts. Instead of a separate ledger account for each department’s spending, you keep one account, such as Stationery, and tag each entry with its cost centre. You can then report by account, by cost centre, or both.
You can create as many dimensions as you need, each with its own list of values. Values can also be grouped, so a total such as “All northern sites” adds up several site cost centres.
How to set up cost centres as a dimension
The setup takes four steps.
- On the Dimensions page, create a dimension, for example COSTCENTRE or DEPARTMENT, and add a value for each cost centre.
- On the General Ledger Setup page, make it one of your two global dimensions. Global dimensions work as filters on reports, lists and batch jobs, which are tasks that process many records at once. You can also pick up to eight shortcut dimensions, which appear as fields on journal and document lines (Microsoft Learn).
- Set a default cost centre on the records that usually decide it, such as a supplier, an employee or a general ledger account. The default is copied onto each new line, and staff can change it where needed.
- On expense accounts, set the Value Posting field to Code Mandatory, so nothing can be posted there without a cost centre.
Choose your global dimensions carefully. Changing one later means Business Central must update every entry already posted with it, which Microsoft warns can take time and lock tables while it runs. Microsoft’s guidance also says not to make a dimension mandatory on accounts used by the Adjust Exchange Rates or Post Inventory Cost to G/L batch jobs.
With that in place, you can filter the chart of accounts by cost centre and build financial reports with a column for each one. You can also set budgets by cost centre and compare them with actual spending.
Sharing out costs: allocations and Cost Accounting
Some costs belong to several cost centres at once. Rent, IT and insurance are common examples. Business Central gives you two main ways to share them out.
Allocation accounts split an amount as you post it. You set up the split once, then use the allocation account on a purchase invoice or journal line, and Business Central posts a share to each cost centre. A fixed allocation uses shares you set. A variable allocation works the shares out from figures that change, such as headcount or floor area. Those figures sit in statistical accounts, which record non-financial numbers next to the ledger (Microsoft Learn’s guide to allocating revenue and costs). For a regular monthly charge, a recurring general journal can also split each posting, for example by percentage.
The Cost Accounting module goes further. It comes with the Essentials plan (Microsoft’s Dynamics 365 Licensing Guide) and sits as a separate layer over the general ledger. It has three building blocks. Cost types are a chart of accounts for costs. Cost centres are the departments responsible for costs and income. Cost objects are the products or services that should finally carry the cost.
You tell Cost Accounting which dimension holds your cost centres, and it reads the values from it. General ledger entries can transfer across with each posting or in a batch. Allocations then move overheads from supporting cost centres, such as IT or premises, to the main cost centres and on to cost objects. They use fixed ratios, or bases that follow changing figures. Because Cost Accounting keeps its own entries, you can refine allocations without touching the general ledger.
Which should you use? If you only need spending and budgets by department, dimensions alone are enough. If shared bills must be split in the books, use allocation accounts. Turn to Cost Accounting when you need to carry overheads through to the cost of your products or services.
Routing approvals to the cost centre’s budget holder
Cost centres are also the natural basis for approvals, because the person who holds a budget should approve spending against it.
Standard Business Central chooses approvers in other ways. On the Approval User Setup page, each user has an approver and amount limits. An approval workflow then sends each request up the requester’s approval chain, to the salesperson or purchaser on the document, to a workflow user group or to one specific approver (Microsoft Learn). A workflow user group is a named set of approvers. So by default, the approver depends on who raised the request, not on which cost centre it is for. For a central purchasing team that buys for every department, that is the wrong question.
One workaround is to copy the approval workflow once per cost centre. Because the cost centre is a global dimension, it is a field on the document. Each copy can test it in a condition and send the request to that cost centre’s budget holder as a specific approver. This works for a handful of cost centres, but every new cost centre and every change of budget holder means editing workflows. Whichever way you route, set substitute approvers in Approval User Setup, so requests do not stall while someone is on holiday.
Where our products fit
If you would rather the cost centre chose the approver, that is what Signpost for Business Central does. It picks the approver from a dimension value on the document, such as its cost centre, so a central purchasing team reaches the right budget holder for each department. It also adds escalation and fallback approvers.