In-depth knowledge of the two pillars of enterprise finance — costs and costs! This paper will lead you to explore the definition of costs in accounting, the conditions for recognition, the nature of costs and how they are calculated, and the delicate and complex relationship between them。
01 definition of “cost” in accounting
In accounting (whether in the accounting curriculum or accounting standards), costs refer to the total outflow of economic benefits incurred by the enterprise in its day-to-day activities, which would result in a reduction in the owner's interests and would not be related to the distribution of profits to all。
1. Conditions for recognition of costs
In addition to being defined, costs should be recognized on at least three conditions:
Cost-related economic benefits are likely to flow out of the enterprise, where the “probability” is greater than 50 per cent; where the result is a reduction in assets or an increase in liabilities; for example, if an enterprise buys raw materials for production, this leads to an outflow of cash from the enterprise, but such outflows do not result in a reduction of the owner's rights (expressed in a decrease in cash, an increase in raw materials, and no change in the total asset and owner's interests), the expenditure cannot be recognized as a cost. The outflow of economic benefits can be reliably measured。
The definition of costs also emphasizes that it takes place in the day-to-day activities of the enterprise
In recent times, for example, there have been floods in many places, losses caused by the flooding of enterprises or fines imposed by the tax administration, which are not expenses for occasional, non-routine activities。
What's the cost
The cost of accounting refers to the economic cost of producing or purchasing a product or service and forms part of the value of the commodity. For people to engage in productive activities or achieve a certain purpose, they have to spend a certain amount of resources, the monetary performance of the resources they spend and their targeting are called costs。
A chestnut: a manufacturing company is supposed to produce paper towels at a fixed cost of $1,000 per month (rent, depreciation of equipment, etc.), which translates into raw materials of $0. 03 per paper towel and a direct labour cost of $0. 07 totalling $0. 10. The company produces 10,000 tissues per month. Total cost = fixed cost + variable text = 1000 + (0. 10 * 10,000) = average cost = 2,000 yen = total cost/production = 2000/10000 = 0. 20 yuan/paper towel
Broadly defined costs refer to resources that people spend in the course of economic activity, such as people, money, goods, time, information, opportunities, etc., to achieve a certain purpose。
As a value category, costs are or may be paid for value sacrifice in monetary terms for a given purpose. For example, “fish” is a cost to people when people “leave their fish to take their palms”; when business invests, money and so on is the cost of business investment。
03 cost-cost relationship
Costs are narrowly defined and broadly defined, and part of the costs in a broad sense translates into costs, such as labour costs directly related to production, material costs, and labour costs for construction work; but the costs are not just costs, but also inventory goods, raw materials, etc. Our current system uses a narrow concept of cost。
1. Cost-cost linkages: 2. Distinction between cost and cost:
