Meaning And Definition of Cost
Accounting is the method of recording the cost of any product or service. Therefore first of all the meaning of cost should be clearly understood. By cost we mean the aggregate of expenditures done in connection with taking a product, producing a product or providing some services. The experts define the cost in the following manner:
- “A cost is the value of economic resources used as a result of producing or doing the things costed.” – W. M. Harper
- “Cost is the amount of expenditure (actual or notional) incurred on or attributable to a given thing,” – I.C.M.A.
Nature of Cost Accounting
(a) Specific branch of accounting : Cost accounting is a specific branch of material accounting which is based on double entry system and in spite of being complementary to financial accounting it differs from it in several angles.
(b) Based on actual and estimated expenses : This accounting method not only records actual expenditures, even estimated expenditures are also used in the statements made for managerial decision making.
(c) Scientific method : In cost accounting certain rules, principles, conventions and standards are followed. It is based on double entry system. In this method complete activities are undertaken in a very systematic manner, therefore it is a scientific method.
(d) Use of art :Though it is a scientific technique yet the human act is used in it, with the help of art by complying with rules and principles, the proforma of different statements can be modified as needed.
(e) Accounting of expenses : With the help of cost accounting expenses can be properly recorded, collected, classified, allotted and divided.
(f) Total cost and per unit cost : With the help of cost accounting total cost of production or services as well as per unit cost can be calculated.
(g) Determination of selling price : In cost accounting the sale price can be determined with the help of cost. It is possible because in this method the estimated total cost can be calculated before the completion of production process. After adding a reasonable profit margin to the estimated total cost the selling price can be easily determined.
(h) Helpful in managerial decision making : Cost accounting provides information which helps in taking decisions in different complex managerial situations.
(i) Cost of work-in-progress : Under cost accounting cost of work-in-progress can also be calculated
More information – In this article we have discussed about cost concept and its elements such as meaning, definition and its nature. In the next article we will discuss about need and importance of cost concept. For more information read next article.
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