Difference between Cost Accounting, Management Accounting and Financial Accounting

Difference between Cost Accounting and Financial Accounting

Relationship between Cost and Financial Accounting

Cost accounting is very closely-related to financial accounting. Some authorities on the subject consider cost accounting to be the branch of financial accounting. But it may be said that cost accounts are complementary to financial accounts, i.e., a subject which is necessary to make financial accounts whole or complete. Financial accounts and cost accounts are both similar in certain respects. But in some other respects they differ from one another. These points of similarities and dissimilarities and enumerated below:

1) The fundamental principles of double entry are applicable in both the systems of accounts.

2) The invoices and vouchers constitute the common basis for recording transactions under both the systems of accounts.

3) The results of business are revealed by both the systems of accounts.

4) The causes for losses and wastages of a business are provided by both these systems of accounts.

5) The determination of future business policy is guided by both these systems of accounts.

6) A basis for comparison of expenses is being provided by both the accounting systems.

7) Accuracy of accounts is maintained under both the systems by means of exercising check over errors and commissions which might creep in either of accounts.


DISTINGUISH BETWEEN FINANCIAL AND COST ACCOUNTING

Basis

Financial Accounting

Cost Accounting

1.    Nature

Financial accounts are maintained on the basis of historical records.

Cost accounts lay emphasis on both historical and predetermined costs.

2.    Use

Financial Accounting is used even by outside entities.

Cost Accounting is used only the management of the concern.

3.    System

Financial Accounting uses the double-entry system for recording financial data.

Cost Accounting does not use the double-entry for collecting cost data.

4.    Scope

Financial Accounting covers all items of income and expenditure whether related to the cost centers or not,

Cost Accounting covers all items related to a cost centre.

5.    Reports

Financial Accounting results are shown P&L A/c and balance sheet.

Cost Accounting results are shown in Cost Sheet/ Coating Profit & Loss A/c/ Reports Contract A/c/ Process A/c.

6.    Period

Financial Accounting is for a specific period.

Cost Accounting concentrates on cost centers and not on period.

7.    Stock Valuation

In financial accounts, stocks are valued at cost or realisable value, whichever is lesser.

In cost accounts stocks are valued at cost.

8.    Analysis of Profit and Cost

In financial accounts, the Profit or Loss of the entire enterprise is disclosed into.

Cost accounts reveal Profit of Loss of different products, departments separately.

Difference between Cost Accounting and Management Accounting

Cost accounting and Management accounting are two modern branches of accounting. Both the systems involve presentation of accounting data for the purpose of decision making and control of day-to-day activities. Cost accounting is concerned not only with cost ascertainment, but also cost control and managerial decision making.

Management accounting makes use of the cost accounting concepts, techniques and data. The functions of cost accounting and management accounting are complimentary. In cost accounting the emphasis is on cost determination while management accounting considers both the cost and revenue. Though it appears that there is overlapping of areas between cost and management accounting, the following are the differences between the two systems.

a)       Purpose: The main objective of cost accounting is to ascertain and control the cost of products or services. The function of management accounting is to provide information to management for efficiently performing the functions of planning, directing, and controlling.

b)      Emphasis: Cost accounting is based on both historical and present data, whereas management according deals with future projections on the basis of historical and present cost data.

c)       Principles and Procedures: Established procedures and practices are followed in cost accounting. No such prescribed practices are followed in Management accounting. The analysis is made and the resulting conclusions are presented in reports as per the requirements of the management.

d)      Data Used: Cost accounting uses only quantitative information whereas management accounting uses both qualitative and quantitative information.

e)      Scope: Management accounting includes, financial accounting, cost accounting, budgeting, tax planning and reporting to management, whereas Cost accounting is concerned mainly with cost ascertainment and control.

Also Read: Important Questions for Upcoming Exams

Unit – 1: Basic Concept of Cost Accounting (Part A) and Cost Sheet (Part B)
(These Questions are subject to modification, if necesary. Download DTS Application for complete notes)

Q. What is Cost accounting? Discuss briefly the nature (2010) and objectives (2011) of Cost accounting. 2023

Q. What are the advantages and limitations of cost accounting?               2019

Q. “Cost accounting is an essential tool to the Management” –Comment.            2011, 2012

Q. Distinguish and also mention the relationship between

Ø  Cost accounting and Financial accounting   2013SN,2016SN, 2018SN

Ø  Cost accounting and Management Accounting

Q. “Cost accounting is better understood as a cost control and cost reduction exercise and not mere a cost ascertainment process”. Considering this statement explain the scope of cost accounting.           2010

Q. What are the steps involved in installing a costing system. Mention the problems faced by a manufacturing unit in installing such a system. What are the essentials of an effective costing system?              2012, 2014

Q. Explain the role and functions of cost accountant.

Q. What do you understand by cost classification? Discuss the various bases of classification of costs and various types of costs.     2015, 2016SN, 2017

Q. Explain the purposes of classification of costs. Distinguish between direct cost and indirect cost.   2022, 2023

Q. Write Short notes on:

Ø  Cost sheet or Statement of Cost       2017SN

Ø  4 Methods of Cost accounting

Ø  4 Techniques of Cost accounting   2019SN

Ø  Cost centre and Cost Unit

Ø  Characteristics of an Ideal Costing System

Or

Unit 1: Part B (Practical)

Practical Problems:

a) Cost sheet focusing on valuation of stock of finished goods, keep in mind expenses ignored in cost accounts, preparation of cost sheet from financial records (refer unit 4 – Reconciliation), profit percentages given on cost price or sale price.          Every year

b) Follow 28 solved questions uploaded on my blog

c) Follow examples of BASU AND DAS COST ACCOUNTING BOOK.

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