Difference Between Financial

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Difference between Financial, Cost and Managerial Accounting:

Financial Accounting:

Financial accounting is the field of accountancy concerned with the preparation of

financial statements for decision makers, such as stockholders, suppliers, banks,employees, government agencies, owners, and other stakeholders. Financial accountancyis used to prepare accounting information for people outside the organization or not

involved in the day to day running of the company.

In short, Financial Accounting is the process of summarizing financial data taken from an

organization's accounting records and publishing in the form of annual (or more frequent)reports for the benefit of people outside the organization.

Cost Accounting:

Cost accounting is concerned with cost accumulation for inventory valuation to meet therequirements of external reporting and internal profit measurement. Cost accounting is

just analysis of financial accounting data for fixation total cost and price of product and

control on cost

Management Accounting:

Management accounting relates to the provision of appropriate information for decision-

making, planning, control and performance evaluation. Management accounting is

analysis of financial and cost accounting for management of business or different plans

and policies


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DEFINITIONS

Direct Material Cost:

Part of raw material cost that can be specifically and consistently associated with or assigned tothe manufacture of a product, a particular work order, or provision of a service

Direct Labor Cost:

Expenditure on wages paid to those operators who are directly concerned with the

production of a product, service, or cost unit. It is one of the cost classifications makingup the direct cost of a cost unit; it is quantified as the product of the time spent on each

activity (collected by means of time sheets or job cards) and the rate of pay of each

operator concerned

Factory Overhead Cost:

Factory Overhead is generally defined as indirect labour, Indirect material and all other

factory expenses that cannot conveniently be identified with nor charged directly to

specific job or products or final cost objectives, such as government contracts. Otherterms used for factory overhead are factory burden, manufacturing expense,

manufacturing overhead, factory expense, and indirect manufacturing cost

Direct Cost:

Direct costs are those for activities or services that benefit specific projects, e.g., salariesfor project staff and materials required for a particular project. Because these activities

are easily traced to projects, their costs are usually charged to projects on an item-by-item

basis.

Indirect Cost:

Indirect costs are those for activities or services that benefit more than one project. Their

precise benefits to a specific project are often difficult or impossible to trace. Forexample, it may be difficult to determine precisely how the activities of the director of an

organization benefit a specific project.

Manufacturing Cost:

Direct material,direct labor, and manufacturing overheads expended in the fabrication,

assembly, and testing of an end item.
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Cost Of Goods Sold:

Cost of goods sold (COGS) includes the direct costs attributable to the production of thegoods sold by a company. This amount includes the materials cost used in creating the

goods along with the direct labour costs used to produce the good. It excludes indirect

expenses such as distribution costs and sales force costs. COGS appear on the incomestatement and can be deducted from revenue to calculate a company's gross margin

Cost Of Goods Manufactured:

The cost of goods manufactured is an element in preparing the income statement. It

consists of the cost of producing goods: Direct Material, Direct Labor and FactoryOverhead. Also considered is the change in the work-in-process inventory

Fixed Cost:

Fixed costs are business expenses that are not dependent on the activities of the businessthey tend to be time-related, such as salaries or rents being paid per month. This is incontrast to variable costs, which are volume-related (and are paid per quantity)

Semi fixed Cost:

A cost which is partly fixed and partly variable

Marginal Cost:

Marginal cost is the change in total cost that arises when the quantity produced changesby one unit. That is, it is the cost of producing one more unit of a good. Mathematically,the marginal cost (MC) function is expressed as the first derivative of the total cost (TC)

function with respect to quantity

Opportunity Cost:

Opportunity cost is the value of the next-best choice available to someone who haspicked between several mutually exclusive choices. It is a key concept in economics. It is

a calculating factor used in mixed markets which favour social change in favour of purely

individualistic economics. It has been described as expressing "the basic relationship

between scarcity and choice. The notion of opportunity cost plays a crucial part inensuring that scarce resources are used efficiently.

Differential Cost:1. Cost that is different for each available alternative.

2. Difference between the costs of two or more alternatives.

3. Alternative term for marginal cost.


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Product Cost:

Sum of all costs associated with the production of a specific quantity of a good orservice

Period Cost:

1. Selling and general administrative expenses identified with the accounting period in

which they are incurred, and charged against sales revenue in the same period. Also

called period expense.

2. Depreciation, interest, rent, and other such costs associated with the passage of time

(instead of with the units of output) and treated as fixed costs.

Expenses:

An expense or expenditure is an outflow of money to another person or group to pay for

an item or service, or for a category of costs. An expense is a cost that is "paid" or

"remitted", usually in exchange for something of value

Sunk Cost:

Sunk costs are retrospective (past) costs that have already been incurred and cannot be

recovered. Sunk costs are sometimes contrasted with prospective costs, which are future

costs that may be incurred or changed if an action is taken. Both retrospective and

prospective costs may be either fixed (that is, they are not dependent on the volume ofeconomic activity, however measured) or variable (dependent on volume).

Out of Pocket Cost:

Cost requiring cash disbursements in the current accounting period. Thus, depreciation is

not an out-of-pocket cost because it does not require spending of cash

Indirect Manufacturing Cost:

Total of all costs of manufacturing except direct materials and direct labor also

called manufacturing overhead, indirect manufacturing expenses, factory expenses,

and factory burden. In addition to indirect material and indirect labor, it includes such

items as depreciation, setup costs, quality costs, cleanup costs, fringe benefits, payroll
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taxes, and insurance. It is an inventorial cost charged by allocation to work-in-process

(WIP).

Prime Cost:

The aggregate of direct materials cost, direct wages (direct labour cost) and variable

direct expenses

Conversion Cost;

The sum of direct wages, direct expenses and overheads costs of converting raw material

to the finished state or converting a material from one stage of production to the next.

Taxes:

A tax may be defined as a "pecuniary burden laid upon individuals or property to support

the government a payment exacted by legislative authority. A tax "is not a voluntarypayment or donation, but an enforced contribution, exacted pursuant to legislative

authority" and is "any contribution imposed by government whether under the name of

toll, tribute, tillage, gable, impost, duty, custom, excise, subsidy, aid, supply, or othername. In modern taxation systems, taxes are levied in money, but in-kind and taxation is

characteristic of traditional or pre-capitalist states and their functional equivalents.

Research and Development Cost:

The cost of searching for new or improved products, new applications of materials, or

new or improved methods and the cost of the process which begins with theimplementation of the decision to produce a new or improved product or to employ a new

or improved method and ends with the commencement of formal production of that

product or by that method.

Amortization:

The gradual elimination of a liability such as a mortgage in regular payments over aspecified period of time. Such payments must be sufficient to cover both principal and

interest

Clerical Cost:

Cost of, pertaining to, appropriate for, or assigned to an office clerk or clerks: a clerical

job. Or doing the work of a clerk or clerks: a clerical assistant; a clerical staff


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Patent:

The exclusive right, granted by the government, to make use ofan invention or process for a specific period of time, usually 14 years

Semi variable Cost:

Semi variable cost is an expense which contains both a fixed cost component and a

variable cost component. The fixed cost element shall be a part of the cost that needs tobe paid irrespective of the level of activity achieved by the entity. On the other hand the

variable component of the cost is payable proportionate to the level of activity


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Difference Between Financial