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Difference Between Cost Accounting and Financial Accounting

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Hsin Wua Chi
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26 views3 pages

Difference Between Cost Accounting and Financial Accounting

Uploaded by

Hsin Wua Chi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Cost 

accounting is a method of managerial accounting which aims to capture the total


production cost of a business by measuring the variable costs of each production phase as
well as fixed costs, such as a lease expense.

Historians believe that cost accounting was first introduced during the industrial


revolution when the new global supply and demand economies forced producers to begin
monitoring their fixed and variable costs to automate their manufacturing processes.

Cost accounting allowed rail and steel companies to manage costs and make themselves
more competitive. By the early 20th century, cost accounting had become a widely discussed
subject in the literature of business management.

A company's internal management department uses cost accounting to define both variable
and fixed costs associated with the manufacturing process. It will first individually calculate
and report these costs, then compare input costs with production results to assist in
assessing financial performance and in making potential business decisions.

Cost accounting includes several forms of costs which are listed below.

 Fixed costs
 Operating costs
 Direct costs
 Variable costs
 Indirect costs

Difference between Cost Accounting and Financial Accounting


Cost accounting is sometimes used to assist decision-making by management within a
business, whereas financial accounting is usually used by outside investors or creditors.

Financial accounting reveals the financial status and results of


a corporation through financial statements to external outlets, which provide information
regarding its sales, expenditures, assets, and liabilities.

Cost accounting can be most useful in budgeting and setting up cost reduction systems as a
method for management, which will increase the company's net profits in future.

The key distinction between cost accounting and financial accounting is that while the costs
are categorised according to the type of transaction in financial accounting, cost accounting
classifies costs according to the management's information needs.
Cost accounting, as it is used by management as an internal method, does not have to follow
any common requirements, such as commonly agreed accounting principles (GAAP) and, as a
result, differs in use from business to company or department to department.

Types of Cost Accounting


 Standard Costing
 Activity-Based Costing
 Lean Accounting
 Marginal Costing ## Meaning of Cost Accounting

Cost accounting is a method of managerial accounting which aims to capture the total
production cost of a business by measuring the variable costs of each production phase as
well as fixed costs, such as a lease expense.

Historians believe that cost accounting was first introduced during the industrial revolution
when the new global supply and demand economies forced producers to begin monitoring
their fixed and variable costs to automate their manufacturing processes.

Cost accounting allowed rail and steel companies to manage costs and make themselves
more competitive. By the early 20th century, cost accounting had become a widely discussed
subject in the literature of business management.

A company's internal management department uses cost accounting to define both variable
and fixed costs associated with the manufacturing process. It will first individually calculate
and report these costs, then compare input costs with production results to assist in
assessing financial performance and in making potential business decisions.

Cost accounting includes several forms of costs which are listed below.

 Fixed costs
 Operating costs
 Direct costs
 Variable costs
 Indirect costs

Difference between Cost Accounting and Financial Accounting


Cost accounting is sometimes used to assist decision-making by management within a
business, whereas financial accounting is usually used by outside investors or creditors.
Financial accounting reveals the financial status and results of a corporation through
financial statements to external outlets, which provide information regarding its sales,
expenditures, assets, and liabilities.

Cost accounting can be most useful in budgeting and setting up cost reduction systems as a
method for management, which will increase the company's net profits in future.

The key distinction between cost accounting and financial accounting is that while the costs
are categorised according to the type of transaction in financial accounting, cost accounting
classifies costs according to the management's information needs.

Cost accounting, as it is used by management as an internal method, does not have to follow
any common requirements, such as commonly agreed accounting principles (GAAP) and, as a
result, differs in use from business to company or department to department.

Types of Cost Accounting


 Standard Costing
 Activity-Based Costing
 Lean Accounting
 Marginal Costing

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