What Is a Profit Center and Cost Center for Balance Sheet ...

For a profit center, balance sheet items may include assets such as product inventory, cash, and buildings or facilities for doing business, while liabilities ... CultureMusicSportsFood&DrinkEntertainmentLifeHomesNewsWeatherShoppingJobsCarsHearstNewspapersparticipatesinvariousaffiliatemarketingprograms,whichmeanswemaygetpaidcommissionsoneditoriallychosenproductspurchasedthroughourlinkstoretailersites.WhatIsaProfitCenterandCostCenterforBalanceSheetItems?SmallBusiness|Finances&Taxes|ProfitByDennisHartmanGeneralCorporatePurposesDefinitionProductionCostIncreases&theDemandCurveWhatIsConsideredFactoryOverhead?CostElementsVs.ProfitMarginsTheAdvantagesofaProcessCostingSystemEverybusinessmustmaintainabalancesheet,whichisoneofthemajorfinancialstatementsthatbusinessesproduceandusetotrackfinancialperformance.Abalancesheetlistsallassetsandliabilitiesforthebusiness,includingthosethatbelongtoitsprofitcenters,costcentersandothertypesofdepartmentsorareasofoperation.ProfitCenterAprofitcenterisapartofabusinessthatgeneratesrevenuewhilealsotakingonitsowncosts,makingitpossibletocalculatethedepartment'sprofitasaself-containedunit.Profitcentersmayincludeageneralorspecificfieldinwhichabusinessoperatesoraspecificmarketthatitoperatesin,aslongasthecostsandrevenuesforthatmarketcanbedistinguishedfromthosethatapplytoothermarkets.CostCenterDefinitionUnlikeaprofitcenter,acostcenterisnotoperatedwiththeintentionofearningrevenueormakingaprofitdirectly.Instead,itisapartofabusinessthatgeneratescostswithoutmakingmoney.Acostcenteronlyenablesprofitcenterstogeneraterevenue.Forexample,inasmallretailbusiness,eachstore,oreachclassofproducts,mayoperateasaprofitcenter,whilethecustomerserviceandhumanresourcesdivisionsoperateascostcenters.BalanceSheetsEverythingthatacostcenterorprofitcenterowes,ownsorexpectstopayinthenearfutureislistedonthebusiness'sbalancesheet.Foraprofitcenter,balancesheetitemsmayincludeassetssuchasproductinventory,cash,andbuildingsorfacilitiesfordoingbusiness,whileliabilitiesmayincludetaxesandworkers'wages.Acostcenteralsocontributesbothassetsandliabilitiestoabusiness'sbalancesheet.Assetsforacostcenterincludecashholdings,whileliabilitiestaketheformofpayrollandcorporatebonds.Aprofitcentermaymaintainitsownbalancesheet,alongwithitsownincomestatement,toshowitsfinancialpositionandprofitability.ConsiderationsCostcenterandprofitcenterarejusttwooftheclassificationsbusinessescanusetodividetheiroperations.Revenuecentersarepartsofabusinessthatgeneratemoneywithouttakingontheassociatedcosts;theyincludesalesdepartments.Investmentcentersdealwithoutsideinvestmentsdesignedtoproduceincomethatisn'trelatedtooperatingactivities.Notallbusinessesormanagerialaccountantsusetheterm"profitcenter,"sinceeverypartofabusinessisdedicatedtoproducingaprofiteitherdirectlyorindirectly.ReferencesMITGeneralLedgerAccounting&Reporting:CostObjectFlagshipTechnologies:ClassesasEnterpriseProfitCentersandCostCentersHarvardBusinessSchool:TheDemiseofCostandProfitCentersResourcesAccountingCoach:BalanceSheetRelatedArticlesWhyIalwaysuseTurboTaxtodomyowntaxesHowtoSetUpCostCentersinQuickenWhyDoesaCostCenterHaveaBudget?WhatAretheFunctionsofaCostCenterinaManagementAccountingSystem?OverheadCostControlMethodWhatIstheDifferenceBetweenaRevenueCenter&anExpenseCenter?HowtoCenterHorizontally&VerticallyinExcelHowtoGetFromGrossMargintoNetIncomeSixoftheElementsofaCompany'sFinancialReportGeneralCorporatePurposesDefinitionProductionCostIncreases&theDemandCurveWhatIsConsideredFactoryOverhead?1WhyIalwaysuseTurboTaxtodomyowntaxes2HowtoSetUpCostCentersinQuicken3WhyDoesaCostCenterHaveaBudget?4WhatAretheFunctionsofaCostCenterinaManagementAccountingSystem?