How do settlement rules, settlement profiles and allocation structures work together?  This question was posed specifically about project systems, but this applies to all cost objects in SAP that require settlement: Production orders, process orders, sales orders, and internal orders. 

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Settlement occurs at month end so the remaining balance on cost objects can be offset and the variance can post to a final resting place on the financial statement. During settlement, the difference between the debit and credit of the order is transferred to the cost center based on the finished good material’s profit center. Each cost object in Controlling has a settlement rule to determine where and how the remaining costs should settle. The settlement rule is generated based on the settlement profile assigned to that order type. 

The settlement profile configuration determines if the order is settled in full, can be settled, or not, what receivers are valid, what allocation structure is relevant, along with many other settings. This is the key piece of settlement configuration that links together other elements like the allocation structure. A different settlement rule is generally required for each cost object.

The allocation structure determines what source cost elements are posted to what settlement cost centers. For example, you can group together material costs to see them separately from labor costs and service costs. You can also settle those costs to different settlement cost elements to have more visibility to that level of detail during settlement.