For a business organization, financial accounting, as well as cost accounting, is essential as per auditing is concerned. Even though the principles of cost accounting are much similar to that of financial accounting, they do differ from each other in the following aspects.
- The reporting direction. Usually, the financial type of accounting is employed for focusing on external reporting whereas the cost accounting has its major objective that lies within the internal management of an organization.
- The flexibility features. While the financial mode is often conducted after the event or is mostly historical, cost accounting has a flexible characteristic and is so open in both retrospective and anticipatory calculations.
- The nature of the operation. When financial accounting involves the classification, recording, presenting and interpreting all the business deals in terms of money transactions, cost accounting covers all these and interprets in the essential terms of the raw materials includes, the total labour force and even with respect to the overhead cost that the company or the department while manufacturing and selling each product.
- Working principles. This is quite an observable thing. Usually, financial accounting utilizes the generally accepted accounting strategies for its prominent calculations which includes pinpointing each transaction, summarizing, and reputing business transactions. However, cost accounting can generally adopt any of the techniques or practices that becomes useful to generate potential information.
- The period of evaluation. For the financial accounting procedure to get completed, it takes almost half a year that is usually a standard or fixed timing. In contrast to this, the reports and statements of cost accounting can be prepared and delivered whenever asked or is required.
- The accounting system. For the financial accounting, the whole business transactions are considered and that too in a double-entry checking scheme whereas for cost accounting different small or bigger units are taken along with the activities of the organization that is easily measurable and can be even used for analyzing the other activities taking place in the organization. You can learn this here now in detail.
Learn the chief requisite for a good costing system
- For the effective costing inside an organization, responsibility should be taken for making and sending the briefed cost reports to the different management levels more or less at a frequent or regular interval. Even the detailed time can be fixed for a year and essential instructions regarding this should be issued in prior.
- Further, all the forms related to this should be thoroughly checked and signed from the corresponding head.