Difference Between Financial Accounting and Cost Accounting
The difference between financial accounting and cost accounting is very important to understand as both of them serve different purpose and audience.
A person from the management may not find certain information relevant, and at the same time, a cost accountant can’t work without this information. A creditor and a cost accountant would need different sets of information from the accounting records of a business.
- It is a branch of accounting, which deals with classifying, measuring and recording a business transaction. Financial accounting is concerned with the preparation of financial statements for the purpose of demonstrating the performance and position of a business. The end products are P&L Account for the period end and Balance Sheet as on the last day of the accounting period.
- It is mainly concerned with the “External users of information” such as Shareholders, Government, Lenders, Public and other users of accounting information.
- It focuses on the history and historical records.
- Example: Suppose a Bank wants to decide whether to extend credit to a firm. It will need to look into the business’ financial accounting data such as financial statements.
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- It is the branch of accounting, which is mainly concerned with “Cost aspect of accounting”. Cost accounting intends to capture and competently manage a company’s cost of production by examining and evaluating various alternative courses of action.
- The main goal of cost accounting is to find out the cost of products or services rendered and use this information to evaluate the profitability and efficiency of business operations. The most appropriate course of action is developed based on the ability and cost efficiency.
- It considers both past and present numbers during the evaluation process.
- Example: Let’s say that an FMCG company has decided to introduce a new product in their range; they will need cost accounting information such as the cost of production per unit, etc. to price the product correctly in the market.
The above information presents a few key points of difference between financial accounting and cost accounting.