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Cost Accounting – I

Notes is making and also its financial position on a particular period. The information concerning the
business or enterprise is helpful to the management to control on business.
The management of every business enterprise is interested to know much more than the usual
information supplied to outsiders. In order to carry out its functions of planning, decision-making
and control, it requires additional cost data. The financial accounts fail, to some extent, to provide
required cost data to management and hence a new system of accounting which could provide
internal report to management was conceived of.

1.1 Meaning and Objectives of Cost Accounting

Meaning and objectives of cost accounting are discussed below:

1.1.1 Meaning of Cost Accounting

Cost accounting is a very wide term. It embraces many subjects within its folds. In general
usage, it is the application of costing and cost accounting principles, methods and techniques
to the science, art and practice of cost control and ascertainment of profitability of business. The
Institute of Cost and Management Accountants, England has defined cost accounting as “the
application of costing and cost accounting principles, methods and techniques to the science, art
and practice of cost control. It includes the presentation of information derived there from for the
purpose of managerial decision-making.” Thus, cost accounting is the science, art and practice of
a cost accountant. It is a science because it consists of organised body of knowledge, which a cost
accountant must possess for proper discharge of his responsibilities.
Cost accounting involves the application of costing principle, methods and techniques for
ascertaining costs and their control by comparing actual costs with the budget or standard. Cost
accounting is an art also, because it includes the ability and skill with which a cost accountant
has to apply his basic knowledge to particular circumstances. It involves the use of various
costing techniques and methods such as marginal costing, standard costing, budgetary control
etc. The applications of these techniques help him in dealing with various problems such as cost
reduction, cost control, ascertainment of profitability, etc.
Cost accounting is also the practice of a cost accountant because he has to make constant efforts
in the field of cost accounting. Such efforts include the information presentation to the top
management for the purpose of managerial decision-making and keeping various records of
business.

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Caution The cost accounting system is not independent of the financial accounts. It merely
represents an elaboration of the basic financial accounting system.
Cost accounting is an important development in the field of accounting. It is the process of
accounting for costs. It embraces the accounting procedures relating to recording of all income and
expenditure and the preparation of various statements and reports with the object of ascertaining
and controlling costs. On analysis of the above meaning and definitions, the following features
of cost accounting become evident:
(i) Cost accounting is used in the very wide sense when compared to cost accountancy and
costing. This is so because cost accounting is concerned with the formulation of principles,
methods and techniques to be applied for ascertaining cost and profit.
(ii) Having ascertained cost and profit, cost accounting is concerned with presentation of
information to management. To enable management to carry out its functions, reports
must be promptly made available at the right time, to the right person and in a proper
form.

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