Cost Centers in Tally Accounting
Meaning of a Cost Center?
The Cost Center is a department or a distinct unit or division within the framework of a company. These cost centers indirectly contribute to the organization’s profits. For accounting, all expenses of that particular division are gathered at these cost centers’ levels. These departments are not engaged in production directly. They may assist in production or associated with other functions such as sales, marketing, human resources, research, development, etc. Many cost centers may not generate any revenue at all for the company. Therefore, they generate profits indirectly for the company.
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Cost Category & Cost Center is an Advance Accounting feature of Tally Prime. Cost categories are useful for organizations that require allocation of revenue (Ex: Indirect & Direct Expense and Direct & Indirect Income) and non-revenue (Ex: Capital) items to parallel sets of cost centers.
The cost centre in Tally Prime refers to an organizational unit to which costs or expenses can be allocated during transactions while the cost category is used to accumulate costs or profits for parallel sets of cost centers. For example, you can use cost centre to track the expenses of each employee or Expenses while cost category can be used to see the effectiveness of each Group of Employee or a Project. Cost Category made by different type-wise like region-wise or geography-wise, Grade-wise, Department-wise, etc.
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Profit Centre Meaning
A profit centre is a division or department of a company that operates for the calculation of profit. In an organization, different profit centres are managed by managers who identify profits on the basis of costs and revenues. The profit centre is accountable for all the actions associated with the sale of goods and production.
The principal object of a profit centre is to generate and maximize profit by minimizing the cost incurred and increasing sales. This objective helps to uplift the profit-making capability of a company.
The accomplishment of a profit centre is estimated in terms of profit growth during a definite period. The achievement of a profit centre is examined by subtracting the actual cost from the budgeted cost.
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