Cost accounting and financial accounting

Cost accounting and financial accounting have similar functions and they provide information and therefore, both branches of accounting are related to each other to a very large extent:

The following are the points of similarity between cost accounting and financial accounting: -Both financial accounting and cost accounting are based on double entry system; i.e. principles of debits and credits; -Transactions are recorded in monetary terms in both financial accounting and cost accounting; -Recording of accounting information is done in both the systems with the same basic documents and -Both systems show cost and profit.

Despite having the similarities as mentioned above, financial accounting and cost accounting differ in many respects:

Purpose: The purpose of financial accounting is to determine the profit for the accounting period and to show the financial position of the concern at the end of the accounting period; whereas, in the case of cost accounting, the purpose is to provide detailed cost information for cost ascertainment, cost control and decision making;

Interested groups: In the case of financial accounting, it provides information to external groups i.e. shareholders, creditors, investors etc. and in the case of cost accounting, it also provides information to the management;

Necessity: The maintenance of financial accounting is necessary to meet the requirements of the income tax, companies act and other laws of the country and maintenance of cost accounting is voluntary except in some industries;

Mode of presentation: Financial accounts are prepared according to accounting standard and accounting principles and statutory requirements and in the case of cost accounting, there are no statutory provisions regarding preparation and presentation of cost accounts;

Recording of transactions: Financial accounts are prepared according to accounting standard and accounting principles and statutory requirements and there are no statutory provisions regarding preparation and presentation of cost accounts;

Recording of transactions: Transactions are recorded, classified and analyzed into personal, real and nominal accounts, i.e. according to the nature of expenditure in the case of financial accounting and in the case of cost accounting, transactions are recorded, classified and analyzed objectively i.e. according to the purpose for which the cost is incurred;

Analysis of profits: Financial accounts show the profit of the business as a whole and does not show profit for each product, process etc.,  and in the case of cost accounts they show the profit made on each job, process or product;

Reporting: Financial accounting observes the accounting period which is normally one year; whereas cost accounting makes day to day reporting like a movie picture. It aims at continuous reporting at short intervals say weekly;

Emphasis: The emphasis of financial accounting is mainly on accuracy of transactions; whereas in the case of cost accounting, the emphasis is to ascertain and to control cost;

Nature: In the case of financial accounting, it is historical in nature and is concerned with historical data and in the case of cost accounting, it is concerned with historical as well as pre determined data;

Control: In the case of financial accounting, it does not provide for adequate control over costs; whereas, in the case of cost accounting, it provides for a detailed system of control over cost.

http://accounting.ezinemark.com/cost-accounting-and-financial-accounting-18d95be821b.html