Nature and Scope of Cost Accounting

Nature of cost accounting. Cost accounting has the following essential characteristics:

• It is a branch of accounting that deals specifically with costs, alongside — and drawing data from — financial accounting.
• It is both a science and an art: a science because it rests on a body of organised principles and rules for ascertaining cost, and an art because applying those principles to a particular business needs skill, judgement and experience.
• It is forward-looking as well as historical: it not only records what things have cost in the past, but is used to estimate, plan and control future costs.
• It is a service function to management — its purpose is to supply information, not to earn revenue directly.
• It deals with both the recording of costs and their analysis and interpretation for control and decision-making.

Scope of cost accounting. The subject is usually taken to cover the following areas:

1. Cost ascertainment — collecting, classifying and analysing expenditure to find the cost of a product, job, process or service, using an appropriate method of costing.
2. Cost accounting (record-keeping) — maintaining the ledgers, cost sheets and other records in which costs are formally recorded and reconciled with the financial accounts.
3. Cost control — the use of techniques such as budgetary control and standard costing to keep costs within limits.
4. Cost reduction — the continuous search for real and permanent reduction in unit costs.
5. Cost reporting and decision-making — presenting cost information to management in a form useful for planning, control and specific business decisions. …