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Simple English definitions for legal terms
cost accounting
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A quick definition of cost accounting:
Cost accounting is a way of keeping track of how much it costs a company to make its products or provide its services. This helps the company figure out how much to charge for its products or services so that it can make a profit. It involves recording the value of assets in terms of their cost. There are different methods of accounting, such as cash-basis accounting, which only considers cash actually received as income and cash actually paid out as an expense, and accrual accounting, which records entries of debits and credits when the liability arises, rather than when the income or expense is received or disbursed.A more thorough explanation:
Cost accounting is a method of recording the value of assets in terms of their cost. It is used to determine the cost of producing goods or services and to help businesses make decisions about pricing and budgeting.
- A company uses cost accounting to determine the cost of producing a product. They consider the cost of materials, labor, and overhead expenses to determine the total cost of production.
- A restaurant uses cost accounting to determine the cost of each menu item. They consider the cost of ingredients, labor, and other expenses to determine the price they should charge for each dish.
These examples illustrate how cost accounting is used to determine the cost of producing goods or services and to make decisions about pricing and budgeting.