Cost Centres & Budgets

The Profit & Loss account tells Priya whether the business as a whole made a profit. It does not tell her whether the Rohtak shop is doing well and the new online store is losing money, or whether electricity is running over plan. Cost centres answer the first question by tagging income and expenses to a unit of the business. Budgets answer the second by comparing actual figures with planned ones.

In this lesson you will set up two cost centres, allocate expenses and sales between them, read the cost centre reports, and then create a quarterly budget and read the variance.

What a cost centre is

A cost centre is any part of the business to which you want to assign income and expenses: a branch, a department, a project, a vehicle, an event. The ledgers stay the same (Electricity, Salary); the cost centre adds a second label to each amount.

Electricity bill 3,000 (one voucher, one ledger)
    allocate to cost centres:
        Rohtak Shop    2,100
        Online Store     900
    total allocated must equal 3,000

Setting up cost centres

1. Press F11, set Show more features to Yes, and set Enable Cost Centres to Yes.
2. Create the cost centres with Alt+G > Create Master > Cost Centre:

A cost category is a set of cost centres used for one kind of analysis. TallyPrime creates Primary Cost Category; you can create more (for example "Departments" and "Projects") if you want to analyse the same expense in two ways.

3. In each income or expense ledger you want to analyse, set Cost centres are applicable to Yes. Do this for Sales, Office Rent, Electricity, Salary and Courier Charges.

Allocating in vouchers

When a voucher uses such a ledger, TallyPrime opens a Cost Centre Allocations screen after the amount:

Cost Centre Allocations for : Electricity
Upto : 3,000.00 Dr

Cost Category : Primary Cost Category
    Rohtak Shop                       2,100.00
    Online Store                        900.00

Priya's May 2026 allocations:

=8000 + 2100 + 22000
=900 + 16680 + 1450
=32100 + 19030

32100    Rohtak Shop expenses
19030    Online Store expenses
51130    equals the total of the expense ledgers

Cost centre reports

Open these with Alt+G and the report name (they are also in Display More Reports under Statements of Accounts):

The Cost Centre Break-up of Online Store shows sales of ₹18,500 against expenses of ₹19,030 before the cost of goods sold, so the online store is not yet covering even its running costs. That is the kind of insight a single Profit & Loss account cannot give.

Budgets

A budget is a plan of amounts for a period. TallyPrime compares it with actual figures and shows the difference (the variance).

Create one with Alt+G > Create Master > Budgets:

Then enter the ledgers, the Type of Budget and the amount:

On Nett Transactions compares the net debits or credits of the period, which suits income and expenses. On Closing Balance compares the balance at the end of each period, which suits balances such as a bank account or debtors. You can also set budgets for groups (all ledgers in the group together) and for cost centres.

Reading the variance

Open the Trial Balance, press F10 (Budget Variance) and choose the budget. The report adds Budget, Actuals and Budget Variance columns; F5 shows it ledger-wise. With these actual figures for April to June:

=286500 - 300000
=8350 - 7500

-13500    sales short of plan
850       electricity over budget

Sales fell short by ₹13,500 and electricity overspent by ₹850. TallyHelp notes that in its variance column a negative value on an expense means the actual exceeded the budget, so read the sign carefully; the table above uses "actual minus budget" to keep it simple.

Common mistakes

• Forgetting "Cost centres are applicable". The allocation screen never appears and the reports stay empty.
• Allocating less than the full amount. Unallocated amounts make cost centre totals disagree with the ledgers.
• Too many cost centres. Every voucher takes longer. Create only the centres you will actually review.
• Budget on closing balance for expenses. Use On Nett Transactions for income and expense ledgers.

Key points

• Cost centres add a second dimension (branch, department, project) to income and expense ledgers.
• Enable with F11 > Enable Cost Centres, create centres, and set Cost centres are applicable in ledgers.
• Allocations must add up to the full ledger amount in each voucher.
• Category Summary, Cost Centre Break-up and Ledger Break-up show the results.
• Budgets are created under Create Master > Budgets; Trial Balance > F10 shows budget, actuals and variance.

=4800 * 25%
=4800 * 75%
=32100 + 1200
=19030 + 3600
=13900 - 12000

1200     Rohtak Shop share
3600     Online Store share
33300    new Rohtak Shop expenses
22630    new Online Store expenses
1900     over budget