The Financial Reporting Process - Vocabulary

Some basic terms used in cost management and accounting include: - Cost. A sacrifice made to acquire goods or services, measured by the price paid. Technically, the sacrifice is called a cost until the benefits from the goods or services have expired, at which time the sacrifice is called an expense. In this text, the terms "cost" and "expense" are used interchangeably. - Revenue. An increase in the value of the firm resulting from the sales of goods and services. - Income. The excess of revenues over costs for a specified period. The term is often used with modifiers to indicate specific quantities on an income statement (e.g., pretax income; net income). - Activity. A measure of production work. Traditionally, physical production volume (tons of ore or units of product) has been used as the measure of activity. Other measures include direct labor hours, equipment operating hours, and quantity of materials or supplies consumed. - Responsibility center. A segment of an organization that is responsible for a specified set of activities. In mining, individual operating divisions can be treated as responsibility centers, known as profit or cost centers. Departments within a division are generally treated as cost centers. - Cost center. A portion of an organization having responsibility for achieving specified levels of cost. - Profit center. A portion of an organization having responsibility for achieving specified levels of profit (revenues and costs).