What's a Profit center and cost center for Balance Sheet Items?

What's a Profit center and cost center for Balance Sheet Items?

by Dennis Hartman, Demand Media

Every business must maintain a balance sheet, which are one of the major financial statements that businesses produce and u SE to track financial performance. A Balance Sheet Lists all assets and liabilities for the business, including those this belong to their profit centers, cost Centers and other types of departments or areas of operation.

Profit Center

A profit center is a part of a business the generates revenue while also taking in its own costs, making it possible to C Alculate The department ' s profit as a self-contained unit. Profit centers may include a general or specific field in which a business operates or a specific market that it operates In, as-long as the costs and revenues for, the can is distinguished from those.

Cost Center Definition

Unlike a profit center, a cost center isn't operated with the intention of earning revenue or making a profit directly. Instead, it's a part of a business that generates costs without making money. A cost center is only enables profit centers to generate revenue. For example, with a small retail business, each store, or each class of products, may operate as a profit center, while the Customer service and human resources divisions operate as cost centers.

related Reading: How to make adjustments to a Balance Sheet for a Inventory fluctuation

Balance Sheets

Everything that-a cost center or profit center owes, owns or expects-pay-in the-the-future-is-listed on the business ' s Balance sheet. For a profit center, balance sheet items may include assets such as product inventory, cash, and buildings or facilities F or doing business, while liabilities may include taxes and workers ' wages. A cost center also contributes both assets and liabilities to a business ' s balance sheet. Assets for a cost center include cash holdings, while liabilities take the form of payroll and corporate bonds. A Profit center may maintain their own balance sheet, along with their own income statement, to show their financial position an D profitability.

Considerations

Cost center and Profit center is just, the classifications businesses can use to divide their operations. Revenue Centers is parts of a business this generate money without taking on the associated costs; They include sales departments. Investment centers deal with outside investments designed to produce income this isn ' t related to operating activities. Not all businesses or managerial accountants use the term "profit center," since every part of a business are dedicated to Producing a profit either directly or indirectly.

What's a Profit center and cost center for Balance Sheet Items?