Cost (also called Profit) centres are organisational or budgetary units. Amounts are allocated to these centres for additional requirements of reporting, budget and control...
First a simple example - the monthly electricity bill needs to be allotted to three different units in some proportion, while the total wages need to be allotted differently - all this, so that you can get to keep tabs on the expenses for each unit for office expenses. These three units are the cost centres - and in Tally.ERP 9 you can also set up budgets for them.
A more 'complex', yet practical example would be the need to allot an expense to more than one set of cost centres. Let's say you buy vehicle insurance for several vehicles and need to allot these to:
• Different business units which use these vehicles - to record expenses against these units
• The vehicles themselves - to record the moneys spent on each vehicle
• The class of uses - to record the amounts against vehicles for people movement and material
The above three become cost categories in Tally.ERP 9, and there is support to record all these in the same voucher - without the need for additional entries and journals. With this you need to maintain only one accounting ledger - 'Vehicle Insurance A/c' and have the ability to monitor expenses by business units, vehicles and class of use.
Often, the proportion of allocation is known in advance. This can be easily setup and applied to a voucher - and the allocation is automated - especially useful for projects and structured businesses.