Key difference between financial accountimg amd cost accounting
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Cost Accounting refers to that branch of accounting which deals with costs incurred in the production of units of an organization. On the other hand, financial accounting refers to the accounting concerned with recording financial data of an organization, in order to exhibit exact position of the business.
Cost accounting generates information so as to keep a check on operations, with an aim of maximizing profit and efficiency of the concern. Conversely, Financial accounting ascertains the financial results, for the accounting period and the position of the assets and liabilities on the last day of the period. There is no comparison between these two because they are equally important for the users. This article presents you the difference between cost accounting and financial accounting in tabular form.
Definition of Financial Accounting
Financial Accounting is the branch of accounting, which keeps the complete record of all monetary transactions of the entity and reports them at the end of the financial period in proper formats that increases readability of the financial statements among its users. The users of financial information are many i.e. from internal management to outside parties.
Preparation of financial statement is the major objective of financial accounting in a specified manner for a particular accounting period of an entity. It includes Income Statement, Balance Sheet, and Cash Flow Statement which helps in, tracing out the performance, profitability and financial status of an organisation during a period.
The information provided by the financial accounting is useful in making comparisons between different organisations and analysing the results thereof, on various parameters. In addition to this, performance and profitability of various financial periods can also be compared easily.
Key Differences Between Cost Accounting and Financial Accounting
The following are the major differences between cost accounting and financial accounting:
1) Cost Accounting aims at maintaining cost records of an organisation. Financial Accounting aims at maintaining all the financial data of an organisation.
2)Cost Accounting Records both historical and per-determined costs. Conversely, Financial Accounting records only historical costs.
3)Users of Cost Accounting is limited to internal management of the entity, whereas users of Financial Accounting are internal as well as external parties.
4)In cost, accounting stock is valued at cost while in financial accounting, the stock is valued at the lower of the two i.e. cost or net realisable value.
5)Cost Accounting is mandatory only for the organisation which is engaged in manufacturing and production activities. On the other hand, Financial Accounting is mandatory for all the organisations, as well as compliance with the provisions of Companies Act and Income Tax Act is also a must.
6)Cost Accounting information is reported periodically at frequent intervals, but financial accounting information is reported after the completion of the financial year i.e. generally one year.
7)Cost Accounting information determines profit related to a particular product, job or process. As opposed to Financial Accounting, which determines the profit for the whole organisation made during a particular period.
8)The purpose of Cost Accounting is to control costs, but the purpose of financial accounting is to keep complete records of the financial information, on the basis of which reporting can be done at the end of the accounting period.