Cost Accounting Vs Financial Accounting - Accounting Basics

Compare and contrast Cost Accounting with Financial Accounting

The policies of the organization are formulated and controlled by both cost accounting and financial accounting. The overall picture of profit or loss is provided by financial management and detailed product-wise analysis is provided by cost accounting.

There is a lot of difference in financial accounting and cost accounting even though the purpose of both the processes remains the same. For instance, if a company deals with 10 different types of products the financial accounting provides information of all the products in totality but under different headers such as cost of material, labour cost, freight charges etc. While cost accounting provides information about each of the overhead product-wise.

The important differences between financial accounting and cost accounting are tabulated below:

Point of Differences
Financial Accounting
Cost Accounting
Meaning
Recoding of transactions is part of financial accounting. Financial statements are prepared by these transactions and by using the financial statements the profitability and the financial position of the company is analysed.
The cost of the product is calculated and cost is controlled by using cost accounting. The variable cost, fixed costs, semi-fixed costs and capital cost are studied by cost accounting.
Purpose
The correct financial position of the organization is provided by Financial Accounting.
Accurate decisions are taken on the basis of calculating the cost of each unit of the product.
Recording
The estimations of the recording of the financial transactions is not used only the actual transactions are used.
The actual transactions are compared with estimation in cost accounting and hence costing is based on estimation and on recording of the actual transactions.
Controlling
Transactions are corrected without taking care of the cost control.
Cost accounting is performed by controlling the costs using costing tools such as costing and budgetary control.
Period
Period of reporting the financial accounting is at the end of the financial year.
Reporting of cost accounting is done as per the requirement of the management as and when desired.
Reporting
In financial accounting, costs are recorded broadly.
In cost accounting, minute reporting of cost is done per-unit wise.
Fixation of Selling Price
Selling price fixation is not the objective of financial accounting.
Sufficient information for determining the selling price is provided by cost accounting.
Relative Efficiency
Financial accounting cannot determine the relative efficiency of workers, plant and machinery.
Cost accounting provides the valuable information about the efficiency of the workers, plant and machinery.
Valuation of Inventory
Valuation basis is ‘cost or market price whichever is less’
Cost accounting always considers the cost price of inventories.
Process
The process involves Journal entries, ledger accounts, trial balance, and financial statements
The process involves Cost of sale of product(s), addition of margin and determination of selling price of the product.

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