Distinguish between cost accounting and financial accounting.

Question

Accepted Answer

Cost accounting and financial accounting draw on the same transactions but differ in purpose, users and method. The main points of distinction are set out below.

| Basis of comparison | Financial Accounting | Cost Accounting |
|---|---|---|
| Main purpose | To ascertain overall profit/loss and financial position | To ascertain and control the cost of each product, job or process |
| Primary users | External parties — owners, investors, creditors, tax authorities | Internal management |
| Statutory requirement | Legally compulsory for most enterprises | Generally optional (compulsory only for certain industries) |
| Nature of information | Aggregate — for the business as a whole | Detailed — product-wise, job-wise, department-wise |
| Time focus | Mainly historical | Both historical and forward-looking |
| Valuation of stock | At cost or net realisable value, whichever is lower | At cost |
| Analysis of profit | One profit figure for the whole business | Profit or loss of each product, job or department |
| Reporting period | Usually once a year | Frequently — monthly, weekly, even daily |
| Format | Prescribed statutory format | Flexible, designed to suit management | …

Q.Distinguish between cost accounting and financial accounting.

Concept understanding — Cost Accounting vs Financial Accounting

Basis of comparison	Financial Accounting	Cost Accounting
Main purpose	To ascertain overall profit/loss and financial position	To ascertain and control the cost of each product, job or process
Primary users	External parties — owners, investors, creditors, tax authorities	Internal management
Statutory requirement	Legally compulsory for most enterprises	Generally optional (compulsory only for certain industries)
Nature of information	Aggregate — for the business as a whole	Detailed — product-wise, job-wise, department-wise
Time focus	Mainly historical	Both historical and forward-looking
Valuation of stock	At cost or net realisable value, whichever is lower	At cost
Analysis of profit	One profit figure for the whole business	Profit or loss of each product, job or department
Reporting period	Usually once a year	Frequently — monthly, weekly, even daily
Format	Prescribed statutory format	Flexible, designed to suit management

Q.Distinguish between cost accounting and financial accounting.

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