Login | Sign up

Creating Cost Centres

Last updated

Overview 

Managing revenue and expenses effectively is crucial for businesses of all sizes. One way to gain better insight into your financials is through the use of branches and cost centres. While smaller firms may only use a default branch, larger firms often segment their operations across multiple branches and cost centres to track performance in more detail.

This guide will explain what cost centres are, why they matter, and how to create, manage, and use them to produce detailed financial reports.

What are Cost Centres?

A Cost Centre is a tag that can be applied to transactions to show where income and expenses originate.

They act as a secondary classification layer, allowing transactions to be grouped by operational area.

Common Examples

  • Marketing Department
  • Litigation Team
  • IT Support
  • London Office - Admin
  • Campaign Q1

Cost Centres are created as Ad Hoc Tags and can be applied across multiple transaction types.

Cost Centres are mainly used for non-matter-related transactions recorded in General Ledger accounts.

Why Use Cost Centres?

Using Cost Centres help firms:

  • Understand departmental performance
  • Improve budgeting accuracy
  • Identify high-cost areas
  • Support management reporting
  • Enable data-driven decisions
They are especially useful for firms with multiple offices, practice areas, or internal teams.

Creating a New Cost Centre Tag

To create a new Cost Centre:

  1. Navigate to Settings → Firm Settings
  2. Select Accounting →  Tags
  3. Next to AdHoc, click Add Tag
    Enter:
    • Unique name
    • Optional Description
  4. Click Save.
 If a tag name already exists, the system will display; Tag must be unique.

Naming Tip

Use clear, descriptive names, for example:

  • Marketing - Digital
  • Birmingham  Office - Admin
  • HR Recruitment 2026
This makes reporting easier and more reliable.

Editing, Deactivating, and Reactivating Tags

To manage existing Cost Centres:

  1. Navigate to Settings → Firm Settings →  Accounting →  Tags
  2. Locate the relevant tag
  3. Click the ellipsis (...) menu

Available Options

  • Update - Change the name or description
  • Disable - Remove the tag from active use
  • Activate - Restore a previously disabled tag

After making changes, click Save.

Disabled tags are not deleted and can be reactivated later if needed.

Applying Cost Centre Tags to Transactions

Once created, Cost Centre tags can be applied to:

  • Office Payments
  • Office Receipts
  • Purchases
  • General Ledger Entries
This allows income and expenses to be allocated accurately.

Applying Tags: Step-by-Step

Office Payments

  1. Create a new Office Payment
  2. Complete payment details
  3. In the Tags column, search and select the tag
  4. Repeat for other allocation lines if required
  5. Click Post

Office Receipts

  1. Create a new Office Receipt
  2. Enter receipt details
  3. Apply tags in the Tags column
  4. Click Post

Purchases

  1. Create a Purchase
  2. Enter supplier and allocation details
  3. Apply tags in the Tags column
  4. Click Post

General Ledger Entries

  1. Create a General Journal
  2. Enter transaction details
  3. Add journal lines if needed
  4. Apply tags to each relevant line
  5. Click Post
Tags only appear when the Allocate To field is set to a General Ledger account (non-matter related transactions)
Multiple tags can be applied to one transaction (e.g., Branch + Team + Cost Centre).

Generating a Profit & Loss Statement by Cost Centre

You can filter your Profit & Loss report to show results by Cost Centre.

Steps

  1. Navigate to Reports → Financial → Profit & Loss
  2. Click on Filters
  3. Click Segment By → Tag
  4. Select
    • Tag 1: Branch
    • Tag 2: Cost Centre (Ad Hoc Tag)
    • Budget Set: Optional
  5. Click Apply
Cost Centres appear as Ad Hoc Tags in the segmentation menu.
Result:
the report will display income and expenses grouped by branch and cost centre, providing detailed operational insights.

Tips for Effective Use of Cost Centres

  • Use consistent naming standards
  • Review tags regularly
  • Remove or disable unused tags
  • Train staff on correct tagging
  • Align cost centres with budgets
  • Audit reports periodically
  • Avoid duplicate tags
  • Avoid vague names
  • Do not overcomplicate the structure