Costs
The word cost appears in many terms, some with subtle distinctions in meaning, used in accounting, economics, and business. The single word cost rarely has a clear meaning. (Neither does the word value have a clear meaning. Avoid using value without a modifying adjective, such as market or present or book.) The word cost, without modifying adjectives, typically means the sacrifice, measured by the price paid or required to be paid, to acquire goods or services. Hence, the single word cost often carries the meaning more precisely represented by the following.
acquisition cost. historical cost. Net price plus all expenditures to ready an item for its intended use at the time the firm acquired the item. The other expenditures might include legal fees, transportation charges, and installation costs.
Accountants can easily measure acquisition cost, but economists and managers often find it less useful in making decisions. Economists and managers more often care about some measure of current costs, which accountants find harder to measure.
current cost. Replacement cost or net realizable value.
replacement cost. Acquisition cost at the date of measurement, typically the present, in contrast to the earlier date of acquisition.
net realizable value. The amount a firm can collect in cash by selling an item, less the costs (such as commissions and delivery costs) of disposition.
This is a free page. This page contains 201 words. This
article contains 2,082 words (approx. 7 pages at 300
words per page).
Read the rest of this Article with our Costs Access Pass.
