Page 14 - DCOM202_COST_ACCOUNTING_I

Cost Accounting – I

Notes (iii) The determination of future business activities and policy is guided by both accounting
systems.
(iv) A basis for comparison of expenditures is being provided by both the accounting systems.
(v) The invoices and vouchers constitute the common basis for recording transactions under
both the systems of accounting.

(vi) The causes for losses and wastages of a business or industry are provided by financial and
cost accounting.

Did u know? The cost accounting is very closely-related to financial accounting. Few
authorities of accounting consider cost accounting to be the branch of financial accounting.
But it may be said that cost accounting is complementary to financial accounting. Financial
accounting and cost accounting are both similar in various ways.

Table 1.1: differences between Financial Accounting and Cost Accounting
Basis of difference Financial Accounting Cost Accounting
purpose and Objective The purpose and objective of The purpose and objectives of cost
financial accounting is external accounting is internal reporting to
reporting mainly to owners, management.
creditors, tax authorities,
government and investors.
Maintenance of Accounts This is to be maintained Cost accounting is maintained
compulsorily by forms of business voluntarily. In some cases
organizations. The preparation of government has directed some
accounts must be in accordance companies to maintain cost
with the statutory provisions of accounts to improve efficiency of
Companies Act and Income Tax Act. business or industry.
Profit Analysis Financial accounting discloses profit Cost accounting shows the profit
for the entire business as a whole. for each product, process or
operation.
Recording It classifies, records and analyses the Cost accounting records the
transactions in a subjective manner, expenditure in an objective
i.e., according to the nature of manner, i.e., according to purpose
expenses. for which costs are incurred.
Use of Control Techniques It does not make use of any type of It makes use of some important
control techniques. control techniques such a Marginal
Costing, Historical Costing,
Budgetary Control, Standard
Costing, etc., in order to control
cost.
Stock Valuation Stock is valued at cost or market Stock is always valued of cost price.
price whichever is less.
pricing policy It fails to guide the formulation of It provides adequate data for
pricing policy. formulating of pricing policy.
Facts and Figures Financial accounting deals mainly Cost accounting deals partly with
with actual facts and figures. facts and figures and partly with
estimates.
Duration of Information Generally, financial accounting Cost accounting furnishes cost data
Reporting provides financial information once at frequent intervals i.e., reports are
a year. daily, weekly and monthly.
Evaluation of Efficiency The information provided by The cost data helps in evaluating
financial accounting is not sufficient the efficiency of the business
to evaluate the efficiency of the activities.
business activities.

8 LOVELY PROFESSIONAL UNIVERSITY