The difference between Cost Accounting vs Financial Accounting

The difference between Cost Accounting vs Financial Accounting Cost accounting and financial accounting are two different accounting methods that are used to record and track the costs of a company‘s activities. Cost accounting focuses on the costs of producing an item or service, while financial accounting focuses on the financial costs of a company‘s activities, such as profits and losses.

Cost accounting refers to the branch of accounting that deals with the costs incurred to produce the units of an organization.On the other hand, financial accounting refers to the accounting concerned with accountingfinancial data of an organization, in order to show the exact location of the company. Industrial accounting generates information in order to maintain control over operations, with the aim of maximizing profit and business efficiency.

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Cost Accounting vs Financial Accounting

Conversely, financial accounting establishes the financial results, for the accounting period and the position of assets and liabilities on the last day of the period. There is no comparison between these two because they are equally important to users. This article presents the difference between Cost Accounting vs Financial Accounting in tabular form.

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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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Definition of Cost Accounting

Cost accounting is the accounting field used to periodically record, summarize, and report cost information.Its main function is to determine and control costs.Helps users of cost data to make determination decisionssales price, cost control, action planning and design, work efficiency measurement, etc.

Cost accounting increases the efficiency of financial accounting by providing relevant information that ultimately leads to good decision making for the organization.Track the cost incurred at each level of production, i.e.from material input to produced output, every cost is recorded.There are two types of industrial accounting systems, they are:

  • Non – Integrated Accounting System: The accounting system in which separate set of books is maintained for cost information.
  • Integrated Accounting System: The accounting system in which cost and financial data are maintained in a single set of books.

Definition of Financial Accounting

Financial accounting is the branch of accounting, which maintains a complete record of all transactions and monetary relations of the entityat the end of the year in suitable formats that increase the readability of the financial statements for its users.There are many users of financial information, e.g.from internal management to external parties.

The preparation of financial statements is the main objective of financial accounting in a specific way for the particular accounting period of an entity.Includes income statement, balance sheet and cash flow statement which help to,monitor the performance, profitability and financial situation of an organization over a period.

The information provided by financial accounting is useful for making comparisons between different organizations and analyzing the results, on various parameters.In addition to this, it is also possible to easily compare the performance and profitability of different financial periods.

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Key Differences Between Cost Accounting vs Financial Accounting

The following are the major differences between cCost Accounting vs Financial Accounting:

  1. Cost Accounting aims at maintaining cost records of an organisation. Financial Accounting aims at maintaining all the financial data of an organisation.
  2. Cost Accounting Records both historical and per-determined costs. Conversely, Financial Accounting records only historical costs.
  3. Users of Cost Accounting is limited to internal management of the entity, whereas users of Financial Accounting are internal as well as external parties.
  4. In cost, accounting stock is valued at cost while in financial accounting, the stock is valued at the lower of the two i.e. cost or net realisable value.
  5. Cost Accounting is mandatory only for the organisation which is engaged in manufacturing and production activities. On the other hand, Financial Accounting is mandatory for all the organisations, as well as compliance with the provisions of Companies Act and Income Tax Act is also a must.
  6. Cost Accounting information is reported periodically at frequent intervals, but financial accounting information is reported after the completion of the financial year i.e. generally one year.
  7. Cost Accounting information determines profit related to a particular product, job or process. As opposed to Financial Accounting, which determines the profit for the whole organisation made during a particular period.
  8. The purpose of Cost Accounting is to control costs, but the purpose of financial accounting is to keep complete records of the financial information, on the basis of which reporting can be done at the end of the accounting period.

Cost Accounting vs Financial Accounting

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The difference between Cost Accounting vs Financial Accounting


Therefore, above are the most important differences between Cost Accounting vs Financial Accountingg.The information provided by cost accounting is useful in the decision-making process of managers to control costs, but it lacks comparability.The information provided by financial accounting is capable of making comparisons, but through this information it is not possible to make future predictions.That’s why they both go side by side, in fact, cost accounting data is useful for financial accounting.

Financial accounting – Wikipedia

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