What is Cost Accounting
Cost Accounting is defined as a field of accounting which is used periodically to report, record and summarize the cost information. In other words, we can define cost accounting as the branch of accounting that is concerned with the costs of producing an organization’s units.
The main role of cost accounting is to identify and control costs. With cost accounting, the users with the cost data can decide the selling price determination, labor efficiency measurement, project plans and actions, controlling costs, etc.
Cost accounting contributes to the effectiveness of financial accounting by offering relevant information, which is eventually the result of the organization’s good decision-making process.
- Integrated Accounting System
- Non-Integrated Accounting System
Integrated Accounting System: – In integrated accounting system, cost and financial data are stored in one book.
Non-Integrated Accounting System: – In this type of accounting system, separate set of books is maintained for cost information.
What is Financial Accounting
Financial accounting is a field of accounting that deals with the recording, reporting, and summary of financial transactions occurring in a business concern over a time period.
In other words, financial accounting is defined as the accounting involved in the recording of an organization’s financial data in order to show the exact position of the company.
The main motive or the objective of financial accounting is to prepare the financial statements for a specific accounting period of an entity in a definite way. It contains the Income Statement, Cash Flow Statement, and Balance Sheet that helps to track an organization’s performance, profitability and financial status over a period of time.
| Comparison Points | Cost Accounting | Financial Accounting |
|---|---|---|
| Meaning | Cost Accounting is an accounting system via which an organization keeps track of different costs incurred in production operations in the company. | Financial Accounting is an accounting system that collects records of company financial information to demonstrate the company’s accurate financial position at a specific date. |
| Type of cost is used for recording. | Historical as well as pre-determined cost. | Only historical cost. |
| Mandatory | No, it is not mandatory, except for manufacturing firms. | Financial Accounting is mandatory for all firms. |
| Information type | Cost accounting records the labor, material and overhead information used in the production process. | In Financial accounting, the information in monetary terms is recorded. |
| Users | Cost accounting information is only used by the organization’s internal management such as directors, employees, supervisors, managers etc. | Financial accounting information is used by internal and external parties such as customers, creditors, shareholders, etc. |
| Valuation of Stock | At cost | Net Realized value or cost, whichever is less. |
| Forecasting | In cost accounting. with the help of budgeting techniques forecasting, is possible. | In Financial accounting, forecasting is not possible. |
| Purpose | The purpose of cost accounting is controlling and reducing costs. | The purpose of financial accounting is to keep the entire record of the financial transactions. |
| Profit Analysis | In cost accounting, normally, the profit is analyzed for a specific job, batch, product, process, etc. | In Financial accounting, expenditure, profit and income are analyzed simultaneously for a specific period of the entire unit. |
