Definition

• Cost centers, or revenue centers, keep multiple budgets organized. Cost centers are created by management as a detailed segment of a master budget. The cost center may be number, letters or a combination of numbers and letters. Each code appears at the top of a budget as a quick reference for bookkeepers or filing.
  
  

Creating Cost Centers

• Using dates is a common way to create and organize cost centers. For example, a cost center may contain an eight-digit code that begins with two numbers that match the departmental code and four numbers to reflect the current budget year. Accountants can create as many cost centers as needed to effectively track budgets within the company. The way cost center codes are organized is critical for tax planning and creating company reports.
  
  

Budget Function

• The company budget reflects the financial goals of a business for a fixed amount of time. Adding cost centers to budgets within your master budget helps to ensure you meet those goals. Each cost center should have its own budget with corresponding tax lines. When tax season comes, your CPA can create reports and complete tax forms with ease. When sending financial updates to investors, well-organized budget data can help create the appearance of financial credibility and professionalism.
  
  

Setting Goals

• A cost center budget helps to track expenses and income. A department or project's goals should stem from the overall budget goals outlined in the cost center. Each time an expense is incurred for a project or department, the money is recorded as an expense of the cost center. At the end of the year, the group can assess how close the project came to being within its projected budget. Large discrepancies between cost center budgets and actual expenses may mean revisiting operational strategies for a particular group within your business.