Cost Accounting · Ch 1 — Introduction to Cost Accounting
Cost Accounting vs Financial Accounting
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Cost Accounting vs Financial Accounting
Cost accounting and financial accounting are two branches of the same tree — both record money spent and earned — but they serve different users and answer different questions. Both draw on the same underlying transactions, so it is important to see clearly how they differ.
| Basis of comparison | Financial Accounting | Cost Accounting |
|---|---|---|
| Main purpose | To ascertain the overall profit or loss and the financial position of the business | To ascertain the cost of each product, job, process or service and to control it |
| Primary users | External parties — owners, investors, creditors, tax authorities | Internal management |
| Statutory requirement | Legally compulsory for most enterprises | Generally optional (compulsory only for certain specified industries) |
| Nature of information | Records transactions in aggregate, for the business as a whole | Records and analyses cost in detail, product-wise, job-wise, department-wise |
| Time focus | Mainly historical — reports on the period just ended | Both historical and forward-looking — used for estimates, budgets and control |
| Basis of valuing stock | Valued at cost or net realisable value, whichever is lower | Valued at cost |
| Analysis of profit | Shows the profit of the whole business as one figure | Shows the profit or loss of each product, job or department separately |
| Reporting period | Usually prepared once a year (and half-yearly/quarterly) | Prepared frequently — monthly, weekly, even daily as needed |
| Format | Follows a prescribed statutory format | Format is flexible, designed to suit management's needs |