Accounting cost definition
/What is Accounting Cost?
Accounting cost is the recorded cost of an activity. An accounting cost is recorded in the ledgers of a business, so the cost appears in an entity's financial statements . If an accounting cost has not yet been consumed and is equal to or greater than the capitalization limit of a business, the cost is recorded in the balance sheet . If an accounting cost has been consumed, the cost is recorded in the income statement . If cash has been expended in association with an accounting cost, the related cash outflow appears in the statement of cash flows . A dividend has no accounting cost, since it is a distribution of earnings to investors .
The scope of an accounting cost can change, depending on the situation. For example, a manager wants to know the accounting cost of a product. If this information is needed for a short-term pricing decision, only the variable costs associated with the product need to be included in the accounting cost. However, if the information is needed to set a long-term price that will cover the company's overhead costs , the scope of the accounting cost will be broadened to include an allocation of fixed costs .
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How Are Accounting Costs Recorded?
An accounting cost is most typically recorded via the accounts payable system. It can also be recorded through a journal entry for individual transactions, or through the payroll system for compensation -related costs.