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Basics of Cost Accounting - 4: Difference between Financial Accounting & Cost Accounting

Difference between Financial Accounting & Cost Accounting

BASIS FOR COMPARISON

COST ACCOUNTING

FINANCIAL ACCOUNTING

Meaning

Cost Accounting is an accounting system, through which an organization keeps the track of various costs incurred in the business in production activities.

Financial Accounting is an accounting system that captures the records of financial information about the business to show the correct financial position of the company at a particular date.

Information type

Records the information related to material, labor and overhead, which are used in the production process.

Records the information which are in monetary terms.

Which type of cost is used for recording?

Both historical and pre-determined cost

Only historical cost.

Users

Information provided by the cost accounting is used only by the internal management of the organization like employees, directors, managers, supervisors etc.

Users of information provided by the financial accounting are internal and external parties like creditors, shareholders, customers etc.

Valuation of Stock

At cost

Cost or Net Realizable Value, whichever is less.

Mandatory

No, except for manufacturing firms it is mandatory.

Yes for all firms.

Time of Reporting

Details provided by cost accounting are frequently prepared and reported to the management.

Financial statements are reported at the end of the accounting period, which is normally 1 year.

Profit Analysis

Generally, the profit is analyzed for a particular product, job, batch or process.

Income, expenditure and profit are analyzed together for a particular period of the whole entity.

Purpose

Reducing and controlling costs.

Keeping complete record of the financial transactions.

Forecasting

Forecasting is possible through budgeting techniques.

Forecasting is not at all possible.

 



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