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Basics of Cost Accounting - 1: Introduction

Introduction

Business needs continuous information regarding costs of business activities to plan accurately for the future, to control business results, and to make a proper appraisal of the performance of persons working in an organisation. 

The fulfillment of these goals requires details about the costs incurred and benefits (revenue) obtained which are provided by cost accounting and management accounting. 

Concept of Cost, Costing, Cost Accounting and Cost Accountancy


A) Cost:

The term cost is understood in a variety of ways. The meaning of cost is different according to different point of view. In ancient period only labour expenses were included in term of cost. However with the development of civilisation, the production methods were changed and material, labour and other expenses are considered in the concept of cost. 

Cost is the amount of resources spent for manufacturing goods or providing services.  

Definitions:

1. According to Chartered Institute of Management Accountants (CIMA), London, “Cost is the amount of expenditure actual or notional incurred on or attributable to a specified thing or activity.”

2. “Cost is the price paid for something.”

B) Costing:

Costing is simply cost finding. It is the process, technique and procedure of ascertaining the cost. It includes all the principles, rules and regulations of calculating the cost.

Definitions:

1. According to CIMA London, “Costing is the technique and process of ascertaining cost.” 

2. “Costing is classifying, recording and appropriate allocation of expenditure for the determination of the cost products or services and for the presentation of suitably arranged data for the purpose of control and guidance of the management.” 

C) Cost Accounting:

Cost Accounting is classifying, recording an appropriate allocation of expenditure for the determination of the costs of products or services, and for the presentation of suitably arranged data for the purpose of control and guidance of management.

D) Cost Accountancy:

Cost Accountancy is defined as ‘the application of Costing and Cost Accounting principles, methods and techniques to the science, art and practice of cost control and the ascertainment of profitability’. It includes the presentation of information derived there from for the purposes of managerial decision making. Thus, Cost Accountancy is the science, art and practice of a Cost Accountant.

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