How to Set Up a Cost Center Structure, With Examples

If month-end still starts with "which department does this cost belong to?", the company's cost center structure either was never set up or no longer works. A cost center is the label that shows which department, branch or team an expense belongs to. Set up properly, budget tracking, approval flows and accounting entries all rest on the same structure. This article explains how a mid-size company in Turkey can set up a cost center structure: how it links to the class 7 cost accounts, a sample cost center table and a sample allocation entry.

Are cost center, "masraf yeri" and "maliyet merkezi" the same thing?

In practice, cost center, "masraf yeri" and "maliyet merkezi" all describe the same thing: the unit responsible for an expense. The difference in wording usually comes from the software and the accounting tradition a team uses.

• Masraf merkezi (cost center): The term finance teams in Turkey use most often. It usually maps to a department or a branch.
• Masraf yeri: The Turkish equivalent preferred by teams working in SAP, where the English term is "cost center".
• Maliyet merkezi / gider yeri: Used in cost accounting to describe production and service units.

The distinction that matters is responsibility, not terminology. Every cost center needs an owner, a budget and a clear rule for which account its expenses go to.

Which accounts is a cost center linked to?

In Turkey, a cost center determines which class 7 cost account of the Tekdüzen Hesap Planı (Turkey's Uniform Chart of Accounts) an expense is posted to. A sales team's expense and head office's expense go to different accounts.

The Uniform Chart of Accounts offers two options:

• 7/A (by function): Expenses are separated by function. This is the option that maps most naturally to a cost center structure.
• 7/B (by nature): Expenses are tracked by type in accounts 790–799. The split by unit is then usually kept in sub-accounts or in a separate reporting dimension.

In a company using 7/A, a common mapping looks like this:

Legal basis: The Uniform Chart of Accounts and the 7/A and 7/B options are set out in the Muhasebe Sistemi Uygulama Genel Tebliği (General Communiqué on the Application of the Accounting System, No. 1), published in Turkey's Official Gazette on 26 December 1992 and applied since 1 January 1994. The cost center structure itself is not a legal requirement; it is a management accounting choice. Confirm your account choice and sub-account breakdown with your mali müşavir (certified public accountant).

How do you set up a cost center structure?

A cost center structure is built starting from budget responsibility, not from the org chart. The checklist below works for a setup from scratch or for cleaning up an existing structure.

1. List the budget owners. Every manager who is held accountable for a budget is a cost center candidate. Do not open a cost center without an owner.
2. Limit the number of levels. Two levels are enough for most mid-size companies: a main unit (Sales) and a sub-unit (Sales – Istanbul Region).
3. Define the code structure. Keep codes meaningful but short; for example, the first digit shows the main unit and the following digits the sub-unit.
4. Link every cost center to a class 7 account. Sales cost centers post to 760, administrative ones to 770; put exceptions in writing.
5. Write an allocation rule for shared costs. Decide in advance at what ratio rent, IT and general services costs are allocated to which cost centers.
6. Define how to close and change cost centers. When a unit merges or closes, its code is deactivated, not deleted, so historical reports stay intact.

Sample cost center structure

The table below shows the cost center structure of a sample service company with 250 employees. Codes and owners are examples.

In this structure every employee has a default cost center. When a sales representative enters an expense, it lands in 210 and is posted to 760; the accounting team does not classify line by line.

Sample entry: allocating one expense to three cost centers

A shared expense is recorded by splitting it across several cost centers according to an allocation ratio. The figures below are examples.

An employee from the IT team spends TRY 1,200 including VAT (example) on training material used by three units. The VAT rate is 20% and the net amount is TRY 1,000. Allocation rule: Sales 50%, Finance 30%, Operations 20%.

The allocation also changes which class 7 account the expense goes to. That is why fixing the ratios when the expense is entered leads to fewer errors than recalculating them at month-end.

Common mistakes in a cost center structure

The most common mistake is to copy the org chart one-to-one into cost centers. This increases maintenance and makes reports hard to read.

• Too many cost centers: Cost centers with very small monthly spend and no clear owner clutter the reports.
• Cost centers named after people: When the employee leaves, the cost center is left without an owner. Open cost centers by role and unit.
• Deleted codes: Deleting a closed cost center breaks comparisons with past periods.
• No default cost center: If employees have to pick a cost center on every expense, wrong choices become more frequent.

How does it work in Masraff?

In Masraff, Cost Center is one of the standard fields used when entering an expense, and it is adapted to each company's own structure. The setup steps above carry over directly to this field.

• Expense Policy Engine: Rules can be written on the cost center field. For example, selecting a certain cost center can make a tag mandatory or trigger a warning. Category-based limits and department-based rules can also be defined.
• Split: An employee can manually split a single expense across several cost centers while entering it.
• Composite Split: The allocation is defined once as a rule. For example, all expenses landing in one cost center are distributed 10%, 10% and 80% to three cost centers, or the IT team's expenses are split equally across four departments.
• Advanced Approval: The approval flow can be set up by organization and by threshold amounts; see the article on expense approval workflows and delegation for details.

You can see how department and cost center structures are managed in Masraff on the department and cost center management page. For budget tracking by cost center, the article on budget management is a good place to start.

Frequently asked questions

What is the difference between a cost center and a "masraf yeri"?

There is no difference in substance between a cost center and a "masraf yeri"; both show the unit responsible for an expense. In Turkey, "masraf yeri" is mostly used by SAP teams, "masraf merkezi" in general finance language.

How do you choose cost center codes?

A cost center code is a short number that shows the main unit and sub-unit in a readable way. Keep it clearly distinct from class 7 account codes, and do not reuse codes of closed cost centers.

How are shared costs allocated to cost centers?

Shared costs are split across cost centers with an allocation key written in advance, such as headcount, floor space or usage share. Review the key at least once a year.

How many cost centers should a small company have?

A small company should not have more cost centers than managers who own a budget. A split into general administration, sales and operations is often a good enough start.