Difference Between Cost Accounting and Financial Accounting
Table of Contents
Difference Between Cost Accounting and Financial Accounting :- Cost Accounting refers to that branch of accounting which deals with costs incurred in the production of units of an organization. On the other hand, financial accounting refers to the accounting concerned with recording financial data of an organization, in order to exhibit exact position of the business.
Difference Between Cost Accounting and Financial Accounting
Cost accounting generates information so as to keep a check on operations, with an aim of maximizing profit and efficiency of the concern. Conversely, Financial accounting ascertains the financial results, for the accounting period and the position of the assets and liabilities on the last day of the period. There is no comparison between these two because they are equally important for the users. This article presents you the difference between cost accounting and financial accounting in tabular form.
What is Cost Accounting?
Cost accounting is referred to as a form of managerial accounting that is used by businesses to classify, summarize and analyse the different costs with the purpose of cost control and cost reduction and thereby helping management in making better decisions.
The primary function of cost accounting is said to be arranging, recording and identifying suitable investment allocation for investment to determine the costs of goods and services. It also helps in presenting relevant data to the management related to service, contract or finding shipment cost.
It also includes information related to cost of production, distribution and selling.
What is Financial Accounting?
Financial accounting is a branch of accounting that is concerned with the summarizing, recording and reporting of financial transactions that take place in a business concern over a time period.
Financial accounting is used for the preparation of various financial statements that can be used by companies to showcase their financial performance to the various users of financial information like creditors, investors, customers and suppliers etc.
| BASIS FOR COMPARISON | COST ACCOUNTING | FINANCIAL ACCOUNTING |
|---|---|---|
| Meaning | Cost Accounting is an accounting system, through which an organization keeps the track of various costs incurred in the business in production activities. | Financial Accounting is an accounting system that captures the records of financial information about the business to show the correct financial position of the company at a particular date. |
| Information type | Records the information related to material, labor and overhead, which are used in the production process. | Records the information which are in monetary terms. |
| Which type of cost is used for recording? | Both historical and pre-determined cost | Only historical cost. |
| Users | Information provided by the cost accounting is used only by the internal management of the organization like employees, directors, managers, supervisors etc. | Users of information provided by the financial accounting are internal and external parties like creditors, shareholders, customers etc. |
| Valuation of Stock | At cost | Cost or Net Realizable Value, whichever is less. |
| Mandatory | No, except for manufacturing firms it is mandatory. | Yes for all firms. |
| Time of Reporting | Details provided by cost accounting are frequently prepared and reported to the management. | Financial statements are reported at the end of the accounting period, which is normally 1 year. |
| Profit Analysis | Generally, the profit is analyzed for a particular product, job, batch or process. | Income, expenditure and profit are analyzed together for a particular period of the whole entity. |
| Purpose | Reducing and controlling costs. | Keeping complete record of the financial transactions. |
| Forecasting | Forecasting is possible through budgeting techniques. | Forecasting is not at all possible. |
Conclusion
So, above are the most important differences between the Cost Accounting and Financial Accounting. The information provided by the Cost Accounting is helpful in the decision making of the managers to control costs, but it lacks comparability. The information provided by the financial accounting is capable of making comparisons, but future forecasting cannot be done through this information. That is why they both go side by side, in fact, cost accounting data is helpful for financial accounting.
Join Our Telegram channel For More Updates
