Difference Between Financial Accounting And Cost Accounting

Table 1.1: Difference between Financial Accounting and Cost Accounting

Basis Financial Accounting Cost Accounting

Purpose It reveals the final results during the particular period for every concern. It provides information of ascertainment of cost to control cost and for decision making about the cost.

Nature It classifies records, presents and interprets transactions in terms of money. It classifies, records, presents, and interprets in a significant manner the material, labor and overheads cost.

Scope Determined by concepts, standards and legal provisions. Determined by management on the basis of relevance and cost benefit considerations

Coverage This deals with whole organization connected with manufacturing and also other activities or

There are not any set formats for presenting cost information.

Conformity to concepts and standards. Absolute need to comply meticulously with accounting concepts and standards. No need to comply with standards and concepts

1.6 Classification of Cost

(a) By nature of expenses: Costs can be categorized into material, labor and other expenses.

(b) By function: Costs are classified into production or manufacturing cost, administration cost, selling and distribution cost, research and development cost.

• Production cost originates with the process of supplying material labor and services and finishes with primary packing of the finished product.

• Administration cost is the aggregate of the costs of framing the policy, guiding the organization and supervisory the operations of an activity, which is not associated directly to production, selling, distribution, research and development activity or function.

• Selling cost refers to the expenditure incurred in promoting sales and retaining customers.

• Distribution cost begins with the process of making the packed product available for dispatch and ends with making the reconditioned returned empty package available for

In a running factory, this cost often represents research and development cost also. Pre-production costs are normally considered as deferred revenue expenditure and are charged to the cost of future production.

• Research and development cost relates to the costs of researching for new or improved products, new application of materials, or new or improved methods, processes, system or services, and also the cost of implementation of the decision including the commencement of commercial production of that product or by that process or method. (c) By variability: Costs are classified into fixed, variable and semi-fixed / semi-variable costs according to their tendency to vary with the volume of output.

• Fixed costs tend to remain unaffected by the variation or change in the volume of output, such as supervisory salary, rent, taxes,