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Cost Accounting and Financial Accounting
Cost accounting and financial accounting are two different branches of accounting. Cost accounting is concerned with the recording of the cost incurred in the production processes of the organisation whereas financial accounting is concerned with recording each and every financial transaction of the organisation. The main aim of cost accounting is to ascertain the real per unit cost of every product and process of business organisation.
On the other hand, the objective of financial accounting is to find out and present the accurate financial picture of the business organisation to all its stakeholders. The information collected by cost accounting is available only to internal users that is for management purposes. Financial accounting whereas provides information to all external users containing all stakeholders connected with business to ascertain the exact financial position of business.
Cost accounting is not mandatory to be performed by law except for manufacturing firms. Whereas financial accounting is mandatory as per law to be followed by every business organisation.
There are lots of differences between these two branches of accounting which are discussed in detail below:
Difference Between Cost Accounting and Financial Accounting
| Basis of Distinction | Cost Accounting | Financial Accounting |
|---|---|---|
| Meaning | Cost accounting is a branch of of accounting which records all Costs incurred in production processes of business. It helps in controlling the overall cost and improving the profitability of business. | Financial accounting is a branch of accounting which records all financial transactions of business and improves the overall transparency of business. |
| Users | Cost accounting provides information only to internal users but not to external users. The information collected by cost accounting is used by internal users for management purposes. These internal users are directors, supervisors, managers, employees etc. | Financial accounting provides information to both internal and external users. Information collected by financial accounting depicts true financial position of organisation to all users. External users like creditors, customers and shareholders can also avail information collected by it in addition to internal users. |
| Purpose | Knowing of real per unit cost of products, fixing of selling price of products and controlling the overall cost | Record each and every financial transaction of business to evaluate financial position and profitability of business. |
| Time of Reporting | There is no fixed time period for cost accounting. It is prepared and reported as and when required by management. | It is prepared and presented at the end of accounting period. The accounting period is generally one year. |
| Nature of information | Records both monetary as well as non-monetary transactions like units. | Records only monetary transactions. |
| Format | No specific principles and format defined to be followed for cost accounting. | Well defined principles like GAAP and IFRS which are framed and controlled by independent agencies need to be followed. |
| Mandatory | It is not mandatory for all organizations. Only manufacturing firms need to do cost accounting. | It is mandatory for all organizations to do financial accounting. |
| Forecasting | With the use of some budgeting techniques forecasting is possible. | There is no aspect of forecasting. |
Key Differences Between Cost Accounting vs Financial Accounting
- Cost accounting is a branch of accounting which records all Costs incurred in the production processes of the business. It helps in controlling the overall cost and improving the profitability of business. vs Financial accounting is a branch of accounting which records all financial transactions of business and improves the overall transparency of business.
- Financial accounting is a branch of accounting which records all financial transactions of business and improves the overall transparency of business. vs Cost accounting provides information only to internal users but not to external users. The information collected by cost accounting is used by internal users for management purposes. These internal users are directors, supervisors, managers, employees etc.
- Knowing of the real per unit cost of products, fixing of selling price of products and controlling the overall cost vs Record each and every financial transaction of business to evaluate financial position and profitability of the business.
- No specific principles and format defined to be followed for cost accounting. vs Well defined principles like GAAP and IFRS which are framed and controlled by independent agencies need to be followed.