Page 7 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting
Notes
2 LOVELY PROFESSIONAL UNIVERSITY
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 Definition of Cost Accounting
Cost accounting, which is a branch of accounting, has been developed due to limitations of
financial accounts. “Cost accounting is an analytical system of accounting that discloses the cost
per unit of different articles manufactured or jobs done and also the cost at various stages of
completion”.
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Caution The cost accounting system is not independent of the fi nancial accounts. It merely
represents an elaboration of the basic financial accounting system.
Cost accounting is concerned with the classification, accumulation, control and assignment of
costs. Cost accountant classifies, costs according to patterns of behaviour, activities or processes
to which they relate products to which they attach and other categories, dependent on the types
of measurement desired costs may be accumulated by accounts, jobs processes products or other
business segments. The cost accounting system is directly concerned with control of inventories,
plant assets and funds expanded on functional activities.
Note Cost Accounting vs. Management Accounting
S.No. Point of Difference Cost Accounting Management Accounting
1. Objectives Its main purpose is to Its major objective is to take decisions
ascertain the cost and through supplement presentation of
control accounting information
2. Scope It deals only with the cost It not only deals with the cost but
and related aspects also revenue. It is wider than the cost
accounting
3. Utilization of Data It uses only quantitative It uses both qualitative and
information pertaining to quantitative information for decision
the transactions making
4. Utility It ends only at the But it starts from where the cost
presentation of accounting ends; means that the cost
information information are major inputs for
decision making
5. Nature It deals with the past and But it deals with future policies and
present data course of actions
The following are the important definitions of cost accounting:
“Cost accounting is the provision of such analysis and classifications of expenditure as will
enable the total cost of any particular unit of production to be ascertained with reasonable degree
of accuracy and at the same time to disclose exactly how such total cost is constituted”.
—Walter W. Bigg