Cost Accounting and financial Accounting
Cost Accounting and financial Accounting: Due to the shortcomings of financial accounting from the perspective of management control and internal reporting, the field of cost accounting has evolved. The task of conveying an accurate and fair overall picture of the outcomes or activities pursued by a business throughout a period and its financial condition at the end of the year is one that financial accounting excels at. Additionally, effective control over the enterprise’s property and assets may be exerted on the basis of financial accounting to prevent their abuse or misappropriation. By giving data from numerous prior years, financial accounting in this sense aids in assessing the entire development of a concern, as well as its strengths and flaws.
The administration of all procedures involved in the effective procurement and allocation of short-, medium-, and long-term financial resources also makes use of data from cost and financial accounting. Financial management is the term used to describe such a management process. Financial management aims to increase shareholder value by making wise choices about investments, financing, and dividends. Financing choices are focused on obtaining the best financing for achieving financial goals, while investment decisions are related to the efficient deployment of limited financial resources.
The last and most crucial “Dividend choice” has to do with deciding how much and how often cash may be distributed to shareholders from earnings. The term “management accounting,” on the other hand, refers to managerial practices and innovations that are aimed at enhancing the value of businesses via the achievement of resource efficiency in dynamic and competitive environments. Because it provides information to managers inside an organization, management accounting is a unique kind of resource management that aids in management’s “decision making.”
Cost accounting and financial accounting vary in a variety of ways, including the following:
Audience: The creation of a standard set of reports for an external audience, which may include investors, creditors, credit rating agencies, and regulatory authorities, is a task in financial accounting. The creation of a wide variety of reports for management to use in running a corporation is a part of cost accounting.
Structure: Generally Accepted Accounting Principles (GAAP) or worldwide financial reporting standards require the extremely detailed format and content of reports issued under financial accounting. In order to include just the information necessary for a particular decision or circumstance, cost accounting entails the creation of reports in any format deemed appropriate by management.
Detail: The primary emphasis of financial accounting is on reporting the performance and financial situation of a complete company organization. Reports generated by cost accounting often include a considerably greater degree of information inside the organization, such as reports for specific items, product lines, regions, clients, or subsidiaries.
Product costs: Financial accounting includes this data in its financial reporting, while cost accounting collects the cost of raw materials, work-in-progress, and completed items inventories (primarily into the balance sheet).
Regulatory framework: Either generally accepted accounting principles or international financial reporting standards strictly regulate the format of financial accounting reports. The cost accounting reports are not subject to any regulations.
Document content: A financial report is a compilation of the financial data that has been entered into the accounting system. Both financial information and operational information may be included in a cost accounting report. The operational data may originate from a number of sources that are not directly within the accounting department’s control.
When to issue reports: Financial accounting staff only produces reports at the conclusion of a reporting period. Depending on when management needs the information and how often, cost accounting personnel may provide reports.
Time horizon: Financial accounting is solely concerned with disclosing the outcomes of finished reporting periods. Additionally to doing this, cost accounting may also be used to make a range of estimates for future time periods.
Cost Accounting and financial Accounting
| Objective |
Financial Accounting It provides information about the financial performance and financial position of the business. |
Cost Accounting It provides information of ascertainments of costs to control costs and for decision-making about the costs. |
| Nature | It classifies records, presents, and interprets transactions in terms of money. | It classifies, records, presents, and interprets in a significant manner materials, labor and overhead costs. |
| Recording of data | It records historical data. | It records and presents estimated budgeted data. It makes use of both historical costs and predetermined costs. |
| Users of information | External users like shareholders, creditors, financial analysts, the government and its agencies,etc. | Used by Internal management at different levels. |
| Analysis of costs and profits | It shows the profit/loss of the organization. | It provides details of costs and profit of each product, process, job, etc. |
| Time Period | They are prepared for a definite period, usually a year. | They are prepared as and when required. |
| Presentation of information | A set format is used for presenting financial information. | There are no set formats for presenting cost information. |