Economics

Unit of Account Costs

Unit of account costs refer to the expenses associated with the process of pricing and accounting in a particular currency. These costs can include the time and resources required to convert and compare prices across different currencies, as well as the potential for errors and discrepancies in financial reporting. In essence, unit of account costs represent the challenges and inefficiencies that arise from using multiple currencies for economic transactions.

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Related key terms

3 Key excerpts on "Unit of Account Costs"

  • Management and Cost Accounting
    eBook - ePub

    Management and Cost Accounting

    Tools and Concepts in a Central European Context

    • Andreas Taschner, Michel Charifzadeh(Authors)
    • 2020(Publication Date)
    • Wiley-VCH
      (Publisher)
    Indirect costs  Indirect costs are related to the particular cost object but cannot be traced to it in an economically feasible way.
  • Marginal cost
     The additional costs incurred when producing one additional unit of output.
  • Opportunity cost
     The foregone benefit of the best possible alternative use of a resource.
  • Outlay cost
     A cost item that leads to a corresponding cash payment.
  • Payment
     Any decrease of liquid funds (cash outflow) of the company.
  • Period cost
     Cost items that are treated as an expense in the period they occur.
  • Predicted costs
     The expected future cost that is assumed to be mainly beyond the company's influence.
  • Proceed
     Any increase in monetary assets of the company (cash plus receivables minus obligations).
  • Product cost
     The cost of producing outputs. When output is sold, product cost determines the cost of sales. When the output is put in stock, product costs are used to determine inventory values.
  • Receipt
     Any increase of liquid funds (cash inflow) of the company.
  • Revenue
     Any increase in economic benefits that is due to regular company operations and therefore leads to an increase in required assets.
  • Standard cost
     The intended future cost level that is achievable under efficient operating conditions.
  • Step-fixed cost
     A cost item that remains constant within a certain activity range and increases to a next-higher level, if the activity level increases beyond that activity range.
  • Sunk cost
     Cost that has already been incurred and that cannot be changed by any future decision.
  • Unit cost
     The average cost per unit of output. Unit cost is determined by relating total cost to the total output quantity.
  • Variable cost
     Variable costs depend on the output volume and therefore change in line with the company's activity level.

    • REVIEW QUESTIONS

    • R1.
      Give examples of how management uses unit costs for analysis.
    • R2.
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  • Financial Accounting (RLE Accounting)
    eBook - ePub

    Financial Accounting (RLE Accounting)

    An Introduction

    • John Blake(Author)
    • 2013(Publication Date)
    • Routledge
      (Publisher)
    11

    INFLATION AND THE ACCOUNTANT

         

    Objectives

    The basic objective of this chapter is to offer a brief review of the problems of adapting the traditional accounting framework to recognize the effects of inflation. Specifically considered are:
    1
    The impact of inflation on traditional historical cost accounts.
    2
    The current purchasing power (CPP) approach to inflation accounting.
    3
    The concept of Value to the business’.
    4
    Current cost accounting (CCA).
    5
    The relative merits of CPP and CCA.

    The impact of inflation

    Historical cost accounts express all items in monetary amounts, as measured at the date when each item first enters the accounts. In times of inflation the ‘value’ of money is falling, so that the monetary unit of measurement does not have a constant value. In times of rising prices there are four major effects on the significance of the accounts:
    1
    Expenditure is normally incurred earlier than the related income is received, so that it will be measured at an amount which understates its ‘value’ at the date of consumption. Thus profit will be overstated.
    2
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  • Accounting Standards: True or False?
    eBook - ePub

    Accounting Standards: True or False?

    • R.A. Rayman(Author)
    • 2013(Publication Date)
    • Routledge
      (Publisher)
    Tweedie and Whittington (1984) . What follows here is no more than a brief outline.

    Inflation Accounting: The Basic Alternatives

    According to the traditional textbook analysis, there are two distinct accounting problems arising from the phenomenon of changing prices. It follows, therefore, that there are two distinct solutions.
    • Problem number one:
      • Changes in the general level of prices may cause the monetary unit of account to become ‘out of date’ in terms of purchasing power.
    • Solution number one:
      • The unit of account should be ‘updated’ by switching from the nominal monetary unit to the current purchasing power equivalent by using an appropriate general price index (GPI).
    • Problem number two:
      • Changes in the specific prices of items actually acquired may (if there is a ‘time-lag’ before use or sale) cause costs charged as expenses in the profit and loss account and costs included as assets in the balance sheet to become ‘out of date’.
    • Solution number two:
      • The valuation basis should be ‘updated’ by switching from historical cost to the current cost equivalent by using appropriate specific price indices (SPIs).
    Depending on which, if any, of the solutions are implemented, there are four basic alternative systems of accounting. Their main features are summarized in Table 5.3
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    • Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
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