How to Create Cost Categories in TallyPrime: 5 Steps + Benefits

Jan 22, 2024

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by

Rishit Shah

in Difficult

Cost categories in TallyPrime offer a powerful way to further classify and analyze your expenses within cost centres.

Here’s how to use them effectively:

Table of Contents

1. Creating Cost Categories:

Go to Gateway of Tally > Accounts Info. > Cost Categories > Create.
Alternatively, use Alt+G (Go To) > Create Master > Cost Category.
Enter a descriptive name for the cost category.
Optionally, choose whether this category applies to both revenue and non-revenue items.
Press Ctrl+A to save the cost category.

2. Linking Cost Categories to Cost Centres:

Go to Gateway of Tally > Accounts Info. > Cost Centres > Alter.
Select the relevant cost centre.
Press F12 (Configure).
Enable Set/Alter allocation by Cost Categories?.
Click on Define Allocation.
Select the cost categories and specify their percentage allocation within the chosen cost centre.
Press Ctrl+A to save the configuration.

3. Assigning Cost Categories to Transactions:

When creating vouchers like purchases, sales, or payments, you can now allocate expenses to specific cost categories within the relevant cost centre.
Open the Cost Centre field for the transaction line.
Click on the … button to access the Cost Centre Allocation window.
Choose the allocated cost centre.
Select the appropriate cost category and enter the corresponding amount.
This way, each expense gets categorized under the correct cost centre and cost category for detailed analysis.

4. Generating Cost Category Reports:

TallyPrime provides various reports to analyze cost category data:
- Cost Category Summary: Shows total expenses by cost category across all cost centres.
- Cost Centre Breakup by Cost Category: Provides detailed expense breakdown by category within each cost centre.
- Comparative Cost Category Report: Compare performance of different cost categories over specific periods.
Access these reports through Gateway of Tally > Display > Accounts Books > Cost Categories > Show/Print….

5. Additional Features of Cost Categories in TallyPrime:

Cost Class: Use cost classes to group similar cost categories for broader analysis.
Budgets: Set budgets for cost categories within cost centres for enhanced control.
Transfer Entries: Transfer funds between cost categories for internal management.

Benefits of Using Cost Categories:

Gain deeper insights into expense patterns by nature of expenditure.
Identify areas for cost optimization within specific categories.
Improve budget allocation and tracking at a granular level.
Strengthen expense control and accountability across departments or projects.

Tips for Effective Cost Category Management:

Define cost categories clearly to ensure accurate expense classification.
Regularly review cost category reports and identify areas for cost reduction.
Set meaningful budgets and monitor variances closely for each category.
Utilize cost category data for informed decision-making regarding resource allocation and expenditure control.

By effectively using cost categories in conjunction with cost centres, you can gain comprehensive insights into your financial data, optimize costs, and make informed decisions to improve your business profitability and control.