Glossary
Expenses & Payables

Cost Center

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

A cost center is a department, program, or activity where a nonprofit tracks and manages expenses separately for budgeting and reporting.
A cost center is a specific department, project, or function within a nonprofit organization where costs are tracked and managed separately. By allocating expenses to distinct cost centers, nonprofits can monitor spending, evaluate efficiency, and make informed budgeting decisions. Cost centers do not directly generate revenue but play a vital role in supporting the organization’s mission. They can include program areas, administrative departments, or fundraising activities. Accurate cost center tracking helps ensure transparency, accountability, and compliance with grant requirements or donor restrictions. This granular approach to expense management enables organizations to analyze financial performance by function and improve resource allocation throughout the organization.

Key Takeaways

  • Tracks expenses by department, program, or function
  • Improves budget monitoring and financial transparency
  • Supports compliance with grant and donor requirements
  • Enables detailed expense reporting and analysis

Why It Matters

Cost centers help nonprofits manage and control spending while ensuring financial accountability and transparency.

Real World Example

A youth services nonprofit operates several programs: after-school tutoring, summer camps, and community outreach. Each program is set up as a cost center. All expenses—such as supplies, staff time, and facility costs—are allocated to the appropriate cost center in the accounting system. At the end of the year, the nonprofit can easily generate reports showing how much was spent on each program, compare costs, and ensure funds were used according to grant restrictions. This level of detail helps the organization make strategic decisions about future programming and demonstrate financial stewardship to donors.

How Aplos Helps

In Aplos, users can set up cost centers as tags or tracking categories to allocate expenses to specific programs, departments, or activities. This enables organizations to generate detailed reports, analyze spending patterns, and demonstrate stewardship of funds to stakeholders and donors. Aplos makes it easy to manage multiple cost centers and align them with your organization’s unique structure.
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Frequently Asked Questions

What is a cost center in nonprofit accounting?

A cost center is a department, program, or activity where a nonprofit tracks expenses separately for budgeting and reporting purposes.

Why are cost centers important for nonprofits?

They help organizations monitor spending, ensure accountability, and meet grant or donor requirements by tracking costs by function or program.

How does Aplos help with managing cost centers?

Aplos allows users to set up and track cost centers easily, generate detailed reports, and analyze expenses by department or program for better financial oversight.

Can a nonprofit have multiple cost centers?

Yes, nonprofits often have multiple cost centers, such as different programs, administrative departments, or fundraising activities, to manage expenses accurately.

Related Terms

Single Audit
Management & Discussion Analysis (MD&A)
In‑Kind Contribution
Debit Card
Temporarily Restricted Net Assets
Pledge

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