Difference between COST and FINANCIAL Accounting

Definition:

Cost Accounting

It is the process of recording, analyzing and classifying of expenditure for the purpose of product / departmental costing to assist cost control.

Financial Accounting

The branch of accounting concerned with classifying, measuring, and recording the transactions of a business. At the end of a period, usually a year but sometimes less, a profit and loss account and a balance sheet are prepared to show the performance and position of the business. Financial accounting is primarily concerned with providing a true and Financial Accounting view of the activities of a business to parties external to it. To ensure that this is done correctly considerable

Major Differences:

Principal objective

FINANCIAL ACCOUNTING - Stewardship of business for benefit of shareholdersCOST ACCOUNTING – seek to improve economy

Users of accounting information

Cost accounting – provision of information to managers to help them in decision-making, planning and control.Financial accounting – provision of information to external users outside the business.

Report recipients

FINANCIAL ACCOUNTING – External/outsiders namely the shareholders and government (tax)COST ACCOUNTING – internal parties like directors and company managers

Outputs

FINANCIAL ACCOUNTING - Summary (usually annual) -profit and loss account, balance sheet & cash flow statementCOST ACCOUNTING - Detailed monthly and annual management accounts showing results by product and function ad hoc reports

Regulating framework

FINANCIAL ACCOUNTING - Accounting concepts (as laid down by the Accounting Standards Board) plus statutory requirements of the Companies ActsCOST ACCOUNTING – Accounting concepts (as laid down by the Accounting Standards Board) plus statutory requirements of the Companies Acts

Emphasis on the future

Financial accounting – what has happened in the pastManagement accounting – concerned with future and past information.

Legal requirements

Financial accounting - Legal requirement for PLC’s (public limited company).Cost accounting– optional.

Frequency of reporting

Financial accounting – published annually.Cost accounting– May be required daily.

Approximations

Financial accounting – must be accurate.Cost accounting– requires information rapidly with more approximate information.

Legalization

FINANCIAL ACCOUNTING - Financial accounting for a limited company is a legal requirement. Subject to audits and other strict regulatory requirementsCOST ACCOUNTING - Not made compulsory by law and audits, etc are not needed.

Application

FINANCIAL ACCOUNTING - Financial accounting is applicable towards the activities of the whole organization.COST ACCOUNTING - More segmented to individual department like purchasing, marketing, etc…

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