What is Accounting Cost?
Accounting cost is defined as the estimated charge your company will incur for renting any asset (for example, office space, computer equipment, or inventory) during the year. Accounting cost is a term used in Accountancy and Finance or Business Management. It usually includes expenses like office rent, computer costs, and so on. Accounting cost is, therefore, an excellent general indicator of what it will cost your company to do business
Accounting Cost is an umbrella term for the cost of any service provided by an organization in which it makes money. Many business owners think it is only the direct costs that matter and ignore all other costs. However, these indirect costs add up over time and can be more than claimed by the company. In fact, accounting costs are usually one of the top expenses for many small businesses.
Accounting costs include
- Fixed costs include salaries, rent, insurance, supplies, and equipment. In addition, they usually include materials and overhead costs.
- Operational costs include rent, fuel, depreciation on property, mailing costs, telephone costs.
- Direct costs include rent for office space, phone calls for customer service.
- Variable costs include wages, taxes, variable administration costs
Components of Accounting Cost
Accounting costs are tangible, out-of-pocket expenses that you must have to run your business effectively. These costs go toward production (manufacturing or production), manufacturing (inventory), marketing, and human resources (payroll, benefits, hiring, and training). A company’s accounting costs are generally easy to identify. They are also real-time costs that may be deducted from revenues in any given accounting period.
Components of Economic Costs
Economic cost refers to the explicit costs that business accountants include in their calculations plus any implicit costs related to revenues or resources. Economic costs include the direct expenses listed on the cash register and those that are unseen but implicit. They also include any other components that may be linked to manufacturing a product.
Accounting cost vs. economic cost: What’s the difference?
- Economic costs are conceptual. Accounting costs are empirical and traceable to a measurable reality.
- Economic costs are what you pay for a service or product. Accounting costs are what you pay for the production of reports or information.
- Accounting costs are part of the production because it is an integral part of managing a business. However, economic costs do not always need to be quantified – sometimes they are transparent and easily measured, as the cost of labor. Other times they may be hidden and harder to measure, like the cost of marketing or managing a company.
- Accounting costs are expenses that are incurred in the normal course of a company’s business. Economic costs are expenditures that will occur in the future, either for capital projects or to operate a business on an ongoing basis.
- The accounting cost is used to calculate profit or loss for a specific period (usually a year). The economic cost is often overlooked in accounting. It includes both explicit and implicit costs.