Last Updated on August 25, 2023 by Sravan
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Cost Accounting and Financial Accounting are two separate branches of Accounting. The former deals with the assessment of the Cost of various products or services and also deals with Cost control & Cost reduction procedures. Whereas, the latter deals with the Preparation of Financial statements like Profit and Loss accounts, Balance sheets, and Cash flow statements.
Cost Accounting definition
Cost accounting is a branch of Accounting which are used by businesses to identify, classify, summarise, and analyze various costs and also to ascertain the total costs for the purpose of cost control, budgeting, Pricing, and cost reduction which also helps management in making better decisions.
Financial Accounting definition
Financial accounting is the Art of Recording, Classifying, and Summarizing business transactions in a significant manner and In terms of money, the transactions and events which are in part at least of the financial character & Interpreting the results thereof.
Difference between Cost accounting and Financial accounting
The key difference between Cost Accounting and Financial Accounting is as follows:
|S.No.||Basis of Difference||Cost Accounting||Financial Accounting|
|1||Meaning||Cost accounting is an accounting system that deals with a detailed analysis of Costs associated with Products or Services of the business.||Financial Accounting deals with overall financial transactions along with the Financial position and Profitability of the business entity.|
|2||Objective||Cost accounting is useful for Cost Control & Cost reduction of a business enterprise and also helps in decision-making.||It provides the Financial performance of the business.|
|3||Type of Information||It records the Information about the Material, Labour, and Overhead. It includes Financial and quantitative information.||It records all the Monetary transactions only.|
|4||Format||No set format is available for the presentation of Costing data.|
Eg: Customised Reports like Cost ascertainment for a Single product or mutiple products can be done.
|A proper set format will be used for presenting financial data|
Eg: Profit and Loss a/c & Balance Sheet will be prepared as per Schedule III of the Companies Act
|5||Mandatory||Cost accounting is not mandatory for all businesses.||Financial Accounting is mandatory for Companies.|
|6||To whom useful||Costing data will be used by the Management, Directors, Managers, Supervisors for Cost control, Pricing and Budgeting purpose.||Financial Accounting data will be used by the Creditors, Banks, Government, Management as well.|
|7||Stock valuation||In Cost accounting, Stock will be valued at Cost only||At Cost or Net realizable Value (NRV) whichever is lower|
|8||Forecasting||By using Budgeting techniques, Forecasting is possible.||In Financial Accounting, Forecasting is not possible. Data will be recorded based on documentary evidence only.|
|9||Type of Cost||Both Historical data and Pre determined costs will be used.||Only historical data will be considered.|
|10||Reporting frequency||Cost accounting reports and Statements are prepared as and when required. It ranges from daily to monthly or quarterly reports.||Financial statements like Profit and Loss account and Balance sheet will be prepared at the year-end, usually 31st March of every year|
|11||Profit analysis||Profit can be analyzed for a particular product or service or job or for a batch or for a department or may be for Process.||Profit will be analyzed for the whole business entity for a particular period.|
|12||Standards||For recording Cost accounting, there are separate Cost accounting standards are available which are governed by Cost Accounting Standard Board (CASB)||For recording Cost accounting, there are separate Cost accounting standards are available which are governed by Accounting Standard Board (ASB)|
|13||Standards Issued by||Cost accounting standards issued by Institute of Cost and Management Accountants of India (ICAI)||Financial accounting standards issued the Institute of Chartered Accountants of India (ICAI)|
In summary, both Financial accounting and Cost accounting are integral part of the business. Each serves its distinct purpose which caters to different clients as per their needs.
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Author is a Qualified CMA with rich industry experience for more than 6 years. He is an All India Ranker (AIR-101) in CMA and also a Semi-Qualified Chartered Accountant having a quite good experience in teaching the subjects of Accounting and Costing to the commerce aspirants.