DIFFERENCES BETWEEN COST ACCOUNTING, FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING
Accounting has three branches, namely; Financial Accounting, Cost accounting and Management accounting.
This records financial transactions between a business and outsiders (i.e.: it’s customers, suppliers, employees, owners or shareholders, management, government and its agencies, financial institutions, lenders, etc and prepares and presents Income Statement (Trading and Profit and Loss Account), Statement of Financial Position (Balance Sheet) and Statement of Cash Flow, at least once every year, to the interest holders of a business.
Cost accountingThis is the establishment of budget, standard cost and actual cost of an activity, operation, a department, a product or service and the analysis of variance (differences), profitability and social use of fund.
This is an integral part of management that is concerned with identifying, preparing and presenting financial accounting and cost accounting information that are used in formulating policies, decision makings and control.
The table below shows the differences between cost accounting and financial accounting
1. It is mainly for external purpose
1. It is mainly for internal purpose
2. It is compulsory especially, for limited liability companies
2. It is optional
3. It is aggregate in nature, in a form of summary
3. It is detailed and analytical in nature
4. It prepares statements covering longer periods like yearly
4. It prepares statements covering shorter periods
like daily, weekly. Monthly, etc.
5. It is purely financial in nature
5. Information are both financial and non
6. It is purely historical
6. It is both historical and forward looking
7. It follows Generally Accepted Accounting Principles (G.A.A.P.) in preparing and presenting information
7. It does not follow any Generally Accepted
Accounting Principles (G.A.A.P.) in preparing
and presenting information
8. It follows strict accounting format in preparing and presenting information
SIMILARITIES BETWEEN COST ACCOUNTING AND FINANCIAL ACCOUNTING
1. They both use the debit and credit entries
2. They are both use information that are financial in nature
3. They both use historical information
4. They are both used by managers for making decisions
5. They both prepare profit and loss statement
1. Tabulate five differences between financial accounting and cost accounting.
2. State three similarities between financial accounting and cost accounting.