This type of accounting implies the general position of business. In financial accounting daily transactions are recorded through entries, ledgers are prepared, after a certain period trial balance is prepared and finally the final accounts i.e., profit and loss account and balance sheet are prepared to show the true and fair view of the affairs of business and loss or profit occurred to that particular business in a particular time. Financial accounting is done by every type of businessman whether the business is big or small.
In cost accounting all the expenses whether these are related with production or sale but have been incurred in that business are analyzed so that the per unit cost of production may be known. In this connection if the producer produces a lot of commodities, he has to know the production cost to decide the sale price of the commodity. This production cost could be known only by cost accounting. In short, each economic activity, if rationally viewed, has two factors i.e., the costs involved in it and the benefits obtained out of it. Cost accounting involves a study of these concepts, tools and techniques which help the businessman in ascertaining and analyzing costs.
|S.No.||Basis Of Difference||Financial Accounting||Cost Accounting|
|1||Object||Financial accounts are prepared to know the total cost, total sale and total profit or loss. Thus the main purpose of financial accounting is to prepare profit & loss account and balance sheet to owners and outside parties.||The main purpose of cost accounting is to facilitate detailed, analyzed and product wise cost information to report to manage-ment for the purpose of planning, decision making and control. Cost accounting purports separate product wise cost, product wise sales and product wise profit or loss.|
|2||Information Interval||Financial accounts show the profit loss and financial position at the end of the particular period.||Cost accounting shows profit, loss and cost of each product at any time.|
|3||Reality Of Expenses||In financial accounts all the direct indirect expenses are real/actual.||In cost accounting indirect expenses (overheads or oncosts) are estimated on some proper bases. For example electricity expenses of each department or product are put to cost on the basis of units consumed by each department or product.|
|4||Price determination||Through the process of financial accounting the determination of the selling price of any product difficult.||Through the process of cost accounting the determination of selling price of any product is reliable.|
Statutory and other Requirementsion
|Financial accounting is prepared to meet the requirements of Companies Act, 1956, Income Tax Act 1961 & Other Acts prevailing in country. All types of business small have concerns whether big or small have maintain the financial accounts essentially.||Cost accounting is maintained voluntarily except where Cost Accounting Records Rules have been framed for maintenance of cost accounting records. Cost accounting records mostly are kept by the Manufacturing concerns, Contractors and Service Organizations.|
|6||Measure of control||Financial accounts can not be used as a measure of cost control.||Cost accounting is so used.|
|7||Valuation of stock||In financial accounting, stocks are valued at cost or net realization value (market value) whichever is less.||In cost accounting stocks are mostly valued at cost.|
|8||Measurement||The information is provided and measured only in terms of money.||The information is provided and measured in monetary and non- monetary as well e.g. in the form of units, per passenger kms. etc.|
|9||Use of graph, chart and diagrams||In financial accounting there is no use of graphs, charts and diagrams etc. for presentation of any kind of information.||These all are frequently used in cost accounting.|
|10||Calculation of tender price||Tender price cannot be quoted with the help of financial accounts.||It is easier to quote tender price with the help of cost accounts.|
|11||Emphasis||More emphasis is given on cas and bank transactions and financial position.||More emphasis is given on controlling techniques to control material, labour and overheads.|
|12||Reporting of cost||In financial system cost of production can only be told at the end of the production and that too in total.||In cost accounting cost of production at each level of output, job, process can be known.|
|13||Basic approach||It is historical in nature.||It has a futuristic approach.|
|14||Normal and abnormal wasteage||In financial accounts normal and abnormal wasteages are not recorded.||This classification is made in cost accounts.|
|15||Reconciliation||These accounts do not need any reconciliation.||Profit shown by cost a/c need to be reconcile with financial results.|
|16||Scope||These accounts are maintained in l types of business and other institutions.||These accounts are maintained by manufacturing or service providing industries.|
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