Update on 2024-04-15
Differences Between Cost Accounting and Financial Accounting: The main purpose of cost accounting and financial accounting is to keep a record of the financial information of a company. Both cost accounting and financial accounting are very important for a company as it helps to forecast growth and understand the profit or loss that the company has incurred.
Both cost accounting and financial accounting are absolutely essential for a company as it helps to understand the business policies and estimate the growth curve. Cost accounting helps in the planning and decision-making of a company through accurate procurement of goods while financial accounting helps to estimate a company’s financial position by keeping a record of the overall financial transactions.
To understand the difference between cost accounting and financial accounting it is necessary to know what exactly is cost accounting and financial accounting.
Cost accounting, also known as Managerial accounting, is the analysis, allocation, summarization and interpretation of the overall cost of a company that is important for decision-making. The main objective of cost accounting is to keep a track of costs at different levels of a business. This involves procurement of goods, inventory analysis, cost of labour, freight charges, material charges and direct expenses.
Cost accounting is very important to record the cost incurred at every step of a company to forecast profitability and reduce chances of loss, damage or misuse of resources.
Financial accounting helps to ascertain the financial transactions of a company at any given point in time. Financial accounting is significant in managing the assets and liabilities of a company and preparing a roadmap of growth and profit.
The main objective of financial accounting is to summarize a company’s actual transactions that including cash flow statements, income statements and balance sheets. If we analyze cost accounting vs financial accounting, the latter also helps to reduce the monetary issues of a company and make plans to attract more investors in future. If you want to know more about this career you can check the Financial Accounting course and Career.
If we summarize Cost accounting vs financial accounting, we find the following differences:
Cost Accounting |
Financial Accounting |
Cost Accounting helps an organization keep track of the production operations like labour costs, procurement of raw materials and inventory. |
Financial accounting helps in summarizing the financial reports of a company to assess profitability. |
Cost Accounting assists in the preparation of internal reports of a company that will help the management to run the business. |
Financial Accounting assists in the preparation of reports for external sources like shareholders and investors. |
Cost accounting is compulsory for manufacturing and production industries. |
Financial accounting is compulsory for all kinds of businesses. |
Cost Accounting is necessary to reduce costs and prevent wastage. |
Financial accounting is essential for understanding and evaluating the financial transactions of a company. |
Cost Accounting is not bound by the principles of the Government regulatory framework. |
Financial Accounting has to comply with the regulations and standards of accounting. |
Cost Accounting helps to forecast the probability of profit or loss in a business. |
Financial Accounting is the overall financial transactions of a company over a given period of time and does not help in business forecasting. |
Cost Accounting involves the total estimates and expenditures of a company in the production of goods. |
Financial Accounting helps to analyze the actual costs and transactions of a company. |
Cost Accounting analyzes the segment-wise profit of a company. |
Financial Accounting analyzes the overall profit of a company. |
Cost Accounting helps to measure and control the costs of a company. |
Financial accounting helps to prepare the financial statement of a company like the balance sheet and income statement. |
Cost accounting involves both monetary and non-monetary transactions and is prepared by the company when required. |
Financial Accounting is a summary of the overall monetary transactions of a company and is prepared at the end of the financial year to determine profitability. |
If you ask the question, Cost accounting vs financial accounting, which is better for pursuing, here is a quick review:
Cost Accounting and Financial Accounting are necessary to understand the policies of an organization. Cost Accounting gives a vivid picture of the cost of procurement of products and manpower that is necessary to run the production whereas Financial Accounting shows the overall profit or loss that the company has incurred in a year.
Cost Accounting is very important for taking managerial decisions of a company that will help to reduce costs and prevent the wastage of resources. Financial Accounting on the other hand keeps a record of the overall financial status and overall profitability of the company in that particular year.
Cost Accounting takes place throughout the year and involves making cost estimates of raw materials, labour, indirect expenses and fixed costs. Financial Accounting involves the analysis of the entire financial transactions of a company at the end of the financial year. This will also help in determining the overall profit or loss incurred by the company at the end of the year.
Therefore it is logical to say that cost accounting begins when financial accounting ends.
Advantages of Cost Accounting:
Cost Accounting and Financial Accounting are very important to maintain the continuity and profitability of a company or business. Cost Accounting and financial accounting are important for decision-making, planning and allocation of resources, preventing wastage, recording overall monetary transactions and improving business performance. By the way, you can also check out Best Accounting Courses in India.
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