Cost Accounting Vs Financial Accounting | Meaning and Comparison

Summary

In this video, Surbhi explains the key differences between cost accounting and financial accounting. Cost accounting focuses on tracking and reporting the cost structure within a business, especially in manufacturing, helping in cost control and efficiency assessment. In contrast, financial accounting records all financial transactions and presents them in formal statements for both internal and external stakeholders. The video highlights aspects such as user accessibility, profit analysis, stock valuation, and the mandatory nature of financial accounting, making it clear how each serves distinct purposes within an organization.

Takeaways

• 😀 Cost accounting focuses on the cost structure of a business, particularly in manufacturing.
• 😀 It involves recording, summarizing, and reporting cost data periodically.
• 😀 The primary objective of cost accounting is to ascertain the costs of goods and services and control costs effectively.
• 😀 Financial accounting tracks all financial transactions and summarizes them in financial statements.
• 😀 Financial statements are used by both internal and external stakeholders to assess the financial health of an enterprise.
• 😀 Key financial statements include income statements, balance sheets, and statements of cash flows.
• 😀 Cost accounting information is primarily for internal users like management and employees, while financial accounting is for both internal and external users.
• 😀 Cost accounting analyzes profit by product or service, whereas financial accounting assesses overall business performance.
• 😀 Stock valuation differs: cost accounting values stock at cost price, while financial accounting values it at the lower of cost or market price.
• 😀 Preparation of financial accounting statements is mandatory for all organizations, whereas cost accounting is essential mainly for manufacturing businesses.

Q & A

What is cost accounting?

Cost accounting is a branch of accounting that examines and reports the cost structure of a business, particularly focusing on manufacturing enterprises.

What is the primary objective of cost accounting?

The primary objective of cost accounting is to determine the cost of goods produced or services rendered, helping businesses control costs by identifying avoidable losses and waste.

How does cost accounting assist businesses?

Cost accounting helps businesses by recording, summarizing, and reporting cost data periodically, assessing the efficiency of cost usage, and setting budgets to compare against actual costs.

What is financial accounting?

Financial accounting is the branch of accounting that tracks all financial transactions of an enterprise over a period of time and summarizes them into financial statements.

What are the key financial statements produced in financial accounting?

The key financial statements include the income statement, balance sheet, statement of cash flows, and statement of retained earnings.

Who are the primary users of cost accounting information?

Cost accounting information is primarily for internal users, such as management, employees, and shareholders.

Who uses financial accounting information?

Financial accounting information is used by both internal and external users, including creditors, banks, suppliers, investors, shareholders, and government agencies.

What is the difference in profit analysis between cost accounting and financial accounting?

Cost accounting analyzes profit for specific products, jobs, or processes, whereas financial accounting provides an overview of the entire business operations to reveal net profit or loss for the period.

How are costs reported differently in cost accounting and financial accounting?

In cost accounting, costs are broken down on a unit basis, while in financial accounting, costs are reported in aggregate.

What type of costs does cost accounting record compared to financial accounting?

Cost accounting records both historical and predetermined costs, while financial accounting records only historical costs.