What are the components of an allocation?

An allocation setup can contain the following components:

• An allocation source which identifies the costs or charges to be apportioned.
• An allocation target which identifies the target account to which the costs or charges are to allocated.
• An allocation ratio which identifies the proportion of the source that is to be allocated to the target, if required.

An allocation generates balancing journal transactions to keep the ledger in balance. The balancing transaction is posted to an offset account which is identified on either the allocation source, or allocation target, depending on the type of allocation being run.

These three allocation components are identified for each of the following example allocation requirements.

Requirement	Allocation Source	Allocation Targets	Allocation Ratio
To allocate GBP 5000 of the marketing costs to International Sales Division.	Marketing Costs	Target: International Marketing costs Offset: Marketing Costs Recovered	Fixed amount of GBP5000
To allocate 30% of marketing costs to Sales.	Marketing Costs	Target: Sales marketing costs Offset: Marketing Costs Recovered	Fixed Percentage of 30%
To allocate a proportion of office costs to Sales according to the ratio of Sales department floor space to the office total floor space.	Head Office Total Costs	Target: Sales head office overheads Offset: Head Office Costs Recovered	Relative Percentage based on Sales floor space as a percentage of Total floor space.

Notice that the allocation ratio is not restricted to a predefined percentage. The ratio can also be expressed as a fixed amount, or a relative percentage determined by any other statistical or financial values held in the ledger.