Cost centers, cost units, dimensions in Business Central or Navision

What does the dimension accounting in Navision / Business Central actually do? It is unbelievable how badly (or not at all) some trainers try to explain this mega feature of Navision or Business Central - often unsuccessfully.

Let's start with the basics. In many companies today, KPI (Key Performance Indicators) and company evaluation still mean "business management evaluation" according to the Datev form.
Actually a pity. Especially if you already have Navision & Business Central in operation. You shouldn't really do anything with Datev anymore, it's usually double and thus wasted time and money.
Now... let's get back to the "Business evaluation". And thus to the first evaluation level: The chart of accounts.

Evaluation level / evaluation stage: Chart of accounts

In the chart of accounts you will find, for example, an item "vehicle costs" (skr03 4500/Skr046500). In the simplest case, we post everything that has to do with company vehicles to this account. The result would then be this:

We only have one total in Business Central and Navision for all vehicle costs throughout the year. We don't know right off the bat what fuel costs are for that, what repair costs are, what acquisition or maintenance costs are.

That is unsatisfactory. It would be much nicer if we could differentiate between operating costs and standing costs, for example.

So you split the G/L accounts:

Now we already have 2 G/L accounts. What if we now want to distinguish between fuel costs and acquisition? Without further thought, we quickly arrive at such G/L accounts for our business analysis:

...And then the next stage would be to allocate those vehicle costs across the different vehicles:

At this point at the latest, everyone should notice that this is a path without a future. With 4-digit account numbers, we will very quickly run out of G/L account numbers to insert between the existing ones. If we use the car license plate instead of "boss", every change of car will automatically lead to one, two or n new G/L accounts. This way of classifying or grouping costs (or even revenues) is ... Not very smart 🙂

However, this was a common procedure in the past, in paper accounting. The subdivision of bookings according to other criteria ("cost centers", "cost objects") did not bring any advantage. On the contrary: Instead of being able to read off ready totals for the individual vehicles at the end of the month and the end of the year, the desired subtotals would first have had to be laboriously read out from the individual bookings.

Step: Include cost object in the posting

First the EDP, and here literally the "Electronic DeneralPprocessing" made it possible to assign so-called booking codes to individual bookings. And these could then also be evaluated in retrospect. From this, the data processors then developed the usable form of cost centers and cost objects. In the general world, Datev probably introduced cost centers and cost objects as terms.

The trick: Each posting is assigned a cost object (for now, we will concentrate on cost objects in Business Central or Navision, cost centers will follow shortly). We no longer post to 10 different G/L accounts, but only to one... and give the posting an evaluable indicator.

Note: From here on I used Business Central and Navision in the 2019 Spring release version, with the RTC (Role Taylored Client) Windows Client. Of course, everything here still applies to the older Navision versions like 2009, 5, 4, 3.70. I believe 3.70 introduced dimensional accounting to Navision. Navision 2.01 for example can only do cost center/cost unit accounting... in principle. But also there is already more...

In the first examples we have divided the G/L accounts according to different cost objects (vehicles, employees, machines, buildings...). Now we will not divide the G/L accounts themselves, but we will provide the postings with the cost objects.

Let's take the example of vehicle costs again, and now take a look at repair costs. We have only one G/L account 4540 Car repairs. But how do we get the individual repair costs for the bosses Mercedes, for Mrs. Müllers Audi and for Mr. Thönes Skoda?

We record directly with each posting to which cost unit this posting belongs!

Via "Balance by dimension", Navision & Business Central can then display the balances by cost unit at any time at the snap of a finger:

...And of course, as you are used to in Navision, you can also break down each individual sum value into its individual values with a click of the mouse. Unimaginable on paper, a matter of course in Business Central or Navision.
Of course, you can use and evaluate this dimension/cost center/cost object in many more ways, but that should suffice here for now.
Summary: With cost objects, it was possible to enter another evaluation level in a very lean, simple, orderly chart of accounts / chart of accounts - without destroying the order in the chart of accounts.

Step: Include cost centers in postings

Although "cost centers" are much better known than cost objects, cost object entry is the most common form of cost allocation/cost entry/cost accounting.
After this was technically possible, however, desire quickly arose - you may know this from my Navison training courses: If this can be done, what else can be done?
And the most obvious wish was probably that the same technique should also be used for cost centers (WHERE do the costs occur? Administration, production, IT, England, Germany, Korea, shipping...?).
Of course, this was no longer a technical problem. This is how the term cost center found its way into financial accounting.

Technically, in addition to the "cost object", the entry for the "cost center" was simply made possible; the evaluation techniques now already existed.

In Business Central & Navision, this was then taken so far that even a 2-dimensional matrix with costs per cost center/cost unit combination was evaluated... all simpler evaluations worked anyway.
Please note that I have -almost incidentally- introduced the term Dimension here!

Level: Dimensions and dimension accounting

It must have been around 2002 when Microsoft (more precisely: at that time still Navision Denmark) thought about these cost centers/cost units in Navision (at that time it was not yet called Business Central) intensively.
What if someone does not want to post zero dimensions (pure G/L account distribution), one dimension (e.g. only cost centers or only cost objects), 2 dimensions (cost centers and cost objects) but also want to book
- Sales region
- Item type
- Vendor
- Project number
- Clerk
- weather/temperature (for real! E.g.: in veterinary practices or general practitioners, gas stations, ice cream parlors...)
- Customer gender (fashion stores)
- Clothing sizes...
?
And what was the answer? Why not?

This introduced dimensional accounting in Navision (and carried over essentially unchanged until Microsoft Business Central 365).

With this technique you can
- Allocate the names of the dimensions freely (whether something is called a cost center, a cost object, a shoe size, a color, you decide)
- The number of dimensions can be freely defined. 0, 1 (cost unit or cost center), 2 (cost unit and cost center, or shoe size & outside temperature in C°), 3, 4, 5 dimensions... it doesn't matter! There is no limitation for this in Business Central or Navision.
There was only one problem left to solve: What do you call this new form of booking classification?
Cost center and cost object was now much too rigid and old-fashioned for this completely new technology (I don't know of any other accounting system that allows this flexibility).
Further above I used the term Dimension as an explanation for the different orientations of the accounting. Vector or Cube would also have worked. But 2-Dimensional (for cost center and cost unit) and 3-Dimensional (e.g. for cost center, cost unit & vendor) can still be well imagined by everyone. And that's how we got to dimension accounting.

Conclusion: Dimension accounting is like cost center and cost unit on Ecstasy

Because, of course, you can apply this technique not only to the "costs". You can also apply this to revenues! And everywhere else too!
And... you can assign one or more dimensions to each customer (client), each article, each G/L account, each vendor (supplier) directly in the master. These entries are then automatically transferred to every booking, every order, every purchase order, every invoice! You don't need to enter this data manually every time. But... you can!!