Virtual Kollage: The differences between Cost Accounting, Financial Accounting and management Accounting

Posted by / Saturday, 30 April 2016 / No comments

The differences between Cost Accounting, Financial Accounting and management Accounting














DIFFERENCES BETWEEN COST ACCOUNTING, FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING

Accounting has three branches, namely; Financial Accounting, Cost accounting and Management accounting.
Financial accounting
This records financial transactions between a business and outsiders (i.e.: it’s customers, suppliers, employees, owners or shareholders, management, government and its agencies, financial institutions, lenders, etc and prepares and presents  Income Statement (Trading and Profit and Loss Account), Statement of Financial Position (Balance Sheet) and Statement of Cash Flow, at least once every year, to the interest holders of a business.

Cost accounting

This is the establishment of budget, standard cost and actual cost of an activity, operation, a department, a product or service and the analysis of variance (differences), profitability and social use of fund.

Management accounting
This is an integral part of management that is concerned with identifying, preparing and presenting financial accounting and cost accounting information that are used in formulating policies, decision makings and control.

The table below shows the differences between cost accounting and financial accounting
FINANCIAL ACCOUNTING
COST ACCOUNTING
1.      It is mainly for external purpose

1. It is mainly for internal purpose
2.      It is compulsory especially, for limited liability companies
2. It is optional

3.      It is aggregate in nature, in a form of summary
3. It is detailed and analytical in nature

4.      It prepares statements covering longer periods like yearly
4. It prepares statements covering shorter periods   
    like daily, weekly. Monthly, etc.

5.      It is purely financial in nature
5. Information are both financial and non 
    financial

6.      It is purely historical
6. It is both historical and forward looking

7.      It follows Generally Accepted Accounting Principles (G.A.A.P.)  in preparing and presenting information
7. It does not  follow any  Generally Accepted
     Accounting Principles (G.A.A.P.)  in preparing 
      and presenting information

8.      It follows strict accounting format in preparing and presenting information



SIMILARITIES BETWEEN COST ACCOUNTING AND FINANCIAL ACCOUNTING

1.      They both use the debit and credit entries
2.      They are both use information that are financial in nature
3.      They both use historical information
4.      They are both used by managers for making decisions
5.      They both prepare profit and loss statement

1. Tabulate five differences between financial accounting and cost accounting.
2. State three similarities between financial accounting and cost accounting.

8. It does not  follow any strict accounting format  
     in preparing and presenting information








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